How to protect your home from foreclosure?
Many people in our country work hard to achieve the Great American Dream of homeownership. Homeownership comes with a plethora of advantages as well as obligations. Entry into the homeownership status may need little or no monetary commitment for a down payment.
A first-time homebuyer's loan is often a customized loan meant to assist people at the entry-level who have not yet amassed considerable money for the down-payment. Banks would always prefer to lend to borrowers who have more capital to invest.
Typically, the required amount in cash is at least ten or twenty percent of the buying price. Almost without exception, banks or mortgage lenders will offer special loans to house buyers with little or no down payment since the loan is generally insured or guaranteed against principle loss by a governmental or quasi-public organization.
In an economic crisis, first-time homeowner loans are frequently the first to fail. Financial difficulties caused by job loss, accident, injury, or relationship troubles begin to transform the American Dream into a nightmare.
Although in a normal economy, very few individuals lose their houses, those in the midst of foreclosure suffer and many can not see themselves effectively out of the position they find themselves in.
California's Foreclosure Procedure
The deed of trust is commonly used in the California home-buying process, and it involves three parties by legal definition: the trustor (borrower), the beneficiary (lender), and the trustee (neutral third party receiving the right to foreclose). The trust deed frequently contains a "power of sale" clause that provides the trustee the legal ability to collect the debt.
When a borrower fails to make their mortgage payments, the right to sell the house is used to collect the debt. When a borrower defaults on their loan, the process of foreclosure begins, in which the lender takes possession of the property to recoup their primary investment.
Once the house is sold at auction or "repossessed" by the lender, it is sold and the former owner must evacuate at the new owner's option. When a power of sale clause is included in the deed of trust, the non-judicial foreclosure process is employed. Before selling the property in a non-judicial foreclosure, the trustee must complete a few conditions.
Non-judicial foreclosure is faster than judicial foreclosure since the trustee does not need to acquire a court order to foreclose, nor is court supervision necessary to sell the house, as it is in the judicial foreclosure procedure. When there is no power of sale clause in the deed of trust, the judicial process of foreclosure is undertaken.
Non-judicial foreclosure in California begins when the trustee submits a notice of default. This is a letter written to the owner/trustee informing him or her of the loan's default. This advises the owner of the lender's intention to exercise their right to collect on the debt.
The copy of the notification, which is registered at the relevant county's County Recorders Office, is addressed to the address specified in the deed of trust. Depending on the beneficiary, how the notification of default is recorded might vary substantially.
It might happen anywhere from a week to many months following the first missed mortgage payment. Following that comes the stage of the foreclosure procedure in which the Notice of Trustee's Sale is filed. The trustee must publish a notice of trustee's sale in the local press and simultaneously file that notice with the county recorder's office no later than ninety (90) days after recording the notice of default.
The residence may be sold at public auction for the amount of the debt plus foreclosure charges no sooner than twenty days (20) after the notice of trustee sale is filed. If no one buys at the auction, the lender takes possession of the property and may sell it to recoup their monetary investment.
How to protect your home from foreclosure?
The first and most critical step in stopping the foreclosure of one's house is to "communication, communicate, communicate!" This initial stage, as well as a few others, are outlined below.
Make a deal with the lender. The lender will always cooperate with a client who takes the effort to convey any financial difficulties that may have caused the default. Negotiate a payment modification with the lender to make up for the delayed payment or payments.
You must move immediately to avoid the sale of your property since once the foreclosure process begins, you only have 120 to 140 days before your home is sold. Contact your lender to explain your circumstances and figure out a solution that will allow you to keep your home. You have the most time and the best possibility of reaching an agreement before the trustee submits the notice of default.
If the foreclosure services process has already commenced, you must inform the lender within 90 days of the notice of trustee sale being posted and filed.
Many homeowners facing foreclosure avoid calling their lenders because they are unhappy or humiliated, which is one of the most prevalent causes of failure to communicate. Many times, the homeowner incorrectly assumes that the lender will not assist them since the lender prefers to foreclose. In actuality, the inverse is true. Banks and other lenders make money largely by collecting interest on loans they make.
Their net income is generated by following a precise procedure to invest and earn interest payments. They find the foreclosure process difficult and are frequently ill-equipped to handle repossessed homes. As a result, because foreclosure is more expensive for them, most lenders are ready to negotiate with homeowners.
It pushes them to devote time and money to a loss-making activity. Contact your lender right away! Do not disregard your lender's phone calls or letters. If you do not notify your lender of your condition, it will presume that you do not plan to pay and the procedure will proceed.
It is critical to plan ahead of time before contacting your lender. All documentation proving your income and spending, as well as loan account information, must be gathered. When you contact, ask to talk with someone in the customer service department and be prepared to describe your financial position in depth.
To assess whether they can offer a solution, your lender must first understand your financial status. Your lender should then be able to provide you with one of the following options:
#1 - Loan modification occurs when the lender agrees to amend the loan's terms. For example, the lender may agree to extend the loan's duration or cut the interest rate. This option allows you to catch up on past-due payments by making your monthly installments more manageable. If you have recovered from a financial crisis and can afford to make your loan payments if they are altered, a loan modification may be acceptable.
#2 - Repayment plan: With this option, you may catch up on late payments by adding a percentage of the late payments to your normal monthly installments. If you have just recovered from a short-term financial crisis and are now able to begin making your normal monthly payments but need time to make up on the overdue installments, a repayment plan may be right for you.
#3 - Reinstatement: When you can pay off the total balance of the outstanding installments by a particular future date, this is referred to as reinstatement. Reinstatement may be acceptable if you know and can demonstrate to your lender that you will soon receive a sum of money sufficient to bring your loan account current.
Forbearance is when your lender agrees to temporarily lower or suspend your loan payments in exchange for an agreement on another strategy to bring the loan account current. This option halts the foreclosure process and is frequently paired with other alternatives, most notably reinstatement.
#4 - Contact a respected foreclosure help counseling service if you are uneasy negotiating with your lender on your own or if you want to better understand your choices. Choose an agency from the list of approved housing counseling agencies maintained by the U.S. Department of Housing and Urban Development. Be wary of fraudulent "counseling companies" that contact you with the promise of providing you with advice on your problem in exchange for a high price!
#5 - Borrow money from family members or friends. Many people are hesitant to use this as their first option. One would assume that this would be the most logical place to start. Many people disregard this as a way of obtaining the cash required to bring the debt current simply because they are too ashamed to ask.
They don't want their relatives or friends to know they're having financial problems, so they go elsewhere. Often, family or friends are the most devoted to offering a helping hand. If they are capable, they are extremely likely to be eager to assist.
Often, humiliation prevents them from being approached until it is too late in the foreclosure process, and they are unable to collect finances quickly enough to assist. Obviously, there are times when family members or friends are not addressed because ties are already strained, or because they do not want to create any discomfort to their close circle of friends or family.
One of the most important things I can advise you is to approach the request for assistance in a very businesslike manner. That is, you should try to ensure their interest in the same way you would if you were the one delivering the cash to someone else in difficulties. The more assurance you can provide them in preserving their cash, the more likely it is that you will be successful in acquiring the monies required to avoid foreclosure.
#6 - Borrow from a financial institution. Another alternative is to borrow from institutional lenders to make up missed payments. This can be accomplished by refinancing or simply borrowing against the equity in the house.
When deciding whether to approve a loan, these lenders will look largely at equity. Equity is defined as the difference between the home's fair market value and the amount owing on the mortgage. When you refinance, you take out a new loan to pay off your previous mortgage.
You may be able to receive a lower interest rate, a longer payment period, and/or a lower monthly payment when refinancing to avoid foreclosure, making your mortgage payments more manageable. Lenders will usually shy away from lending to you if they learn you have gone behind on your mortgage payments, so if you want to borrow from an institutional lender, you must move fast before your credit reflects any late payments.
If the lender learns that you are in default, they will most likely refuse to lend to you or give you a loan with a substantially higher interest rate to compensate for the borrower's inability to satisfy their financial responsibilities.
#7 - Borrow from third-party lenders. Individuals having cash to invest want a larger return on their investment than can be gained by depositing their assets with a savings organization. These people anticipate a high rate of return on their financial investments and are aware that the loan they are supporting is a high-risk loan.
Borrowing money becomes very difficult after a homeowner falls behind on their mortgage payments. When issuing a loan, these private lenders frequently take into account the property's equity. Because the borrower has fallen behind on their payments, the lender cannot utilize the borrower's capacity to repay on time as the primary reason for qualifying.
The lender seeks security for their investment in the capacity to recoup it based on the property's market worth and what the borrower owes on the property. Almost without exception, these loans have significantly higher interest rates than standard house loans available from banks or other lending organizations. They are, however, frequently the only choice available to a foreclosed homeowner.
Declare Bankruptcy
Personal bankruptcy is addressed in two chapters: Chapter 13 and Chapter 7. The fundamental distinction between the two chapters is that Chapter 13 assists individual debtors in repaying their debt while under the supervision and protection of the court, whereas Chapter 7 removes, in legal terminology, liquidates, the debtor's obligation.
Based only on this overly simplified description, bankruptcy may appear to be the easiest and best answer to your financial troubles. However, if you are considering filing for bankruptcy, keep in mind that it is a complex legal procedure with significant financial ramifications.
It is not the greatest choice for most debtors and should only be chosen as a last resort after all other options have been researched or attempted.
Individual financial situations vary so greatly that you should consult with a financial planner or accountant as well as a bankruptcy attorney to explore your specific financial status and the ramifications of bankruptcy. If you do not already have a relationship with an attorney, I would recommend getting two or three views.
Sell the house
Many times, selling the house and recouping 100 percent of the equity minus selling charges is the ideal alternative for someone who has gone behind on their payments.
Unfortunately, many homeowners are caught up in the emotions of their financial situation and fail to recognize the facts of their situation. They wander around, almost as if wearing blinders, expecting a magical answer, sometimes waiting until it is too late to devise a sensible strategy.
If a homeowner can properly examine their circumstances and conclude that they are unable to handle the financial strain, they may be far better off selling the house and retaining the majority of their equity until they are ready to become homeowners again, if they so want.
They must move swiftly to avoid having their credit wrecked by failing to make their mortgage payments on time or by utilizing the bankruptcy procedure just to prevent the sale of their house. Don't let the high expenses of loans to people in trouble eat away at your equity. Sell the house while retaining the most crucial or valuable component, namely the equity!
Unfortunate events happen to many of us as we move through life. Be proactive in protecting your financial health when these issues arise. You should be able to prevent foreclosure if you move immediately and take efforts to protect your assets.
If you do go into foreclosure, following these principles should make the process less painful. Seeking help from specialists in taxation, law, and real estate as soon as possible will boost your chances of completing the procedure successfully.
