How To Avoid Foreclosure

How To Avoid Foreclosure

When you first enter into a mortgage, the last thing you want to think about is foreclosure, but unfortunately, this process is a reality for some homeowners. We delve deep on how you can avoid foreclose and detail what the most common reasons for foreclosure.

Why Does Foreclosure Occur?

Foreclosure is what occurs when the lender seizes the property, evicts the homeowner, and then sells the property, and this happens after a series of missed mortgage payments.

Despite our best efforts, sometimes there are things out of our control that prevents us from being able to make mortgage repayments. If you’re unable to make payments anymore then your lender is able to sell the asset, which can be the worst case scenario for many homeowners.

Real Estate Home Foreclosure Legal Notice

Although these times in life might make it harder to stay on top of your mortgage, there are still things you can to do prevent foreclosure. We’re here to show you the basics about what foreclosure means and you can make sure it doesn’t happen to your home.

What Is Foreclosure?

The most basic definition of foreclosure is when a mortgage holder stops making repayments and the lender is forced to sell the asset used as collateral for the loan. When you buy a house and use something as collateral to secure the loan, such as the real estate, then the bank technically owns the right to sell this should you stop making payments.

The foreclosure process usually happens over a specific timeline that most lenders follow. One month after the first missed mortgage payment, the loan will be placed in default and you will be notified by the lender. If after three to six months the payment still has not been made and no effort has been made to rectify the issue, the lender will start the foreclosure process.

Under the law, the lender is able to seize your property or another asset that was used for collateral, and then sell the home. These homes are usually sold for well under the market value as the lender is simply looking for a fast way to reimburse themselves for the costs, and the borrower is then left with nothing.

The Common Reasons For Foreclosure

As much as we can plan in life, there are some situations where a foreclosure might seem out of our control.  Here are some reasons why some people choose voluntary foreclosure or it simply feels that it slipped out of their control.

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    Loss of job or reduced hours
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    Medical conditions which make it impossible to work
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    Sick family member or death in the family
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    Maintenance issues with the house that can’t be afforded
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    Divorce, separation, or family problems

During the infamous housing market crash that began in 2005, there were many Americans who felt they had no choice but to foreclose their homes as they were unable to make payments.

Young Couple With Packed Stuff In House

The debt of their mortgage was more than the house was worth, and so some felt it best to simply walk away. Although these are trying times for anyone, let alone someone struggling to pay a mortgage, there are still some things you can do to avoid the finality of a foreclosure.

How To Avoid Foreclosure

No matter how well you plan or budget with your money, some things are out of our control and there may be times when you have a missed mortgage payments. Rather than letting it go any further and eventually turning into the worst case scenario, here are some things you can do to prevent foreclosure.

Make At Least Portion Of Your Payments

Even if money is tight and you’re unable to make your full repayments, it shows the lender that you are serious about getting on top of things if you can come to an agreement about a partial payment.

Changing The Terms Of The Loan

Sometimes it can make things easier to change the terms of the loan such as repayment frequency, interest rates or other conditions.

Spread Out The Payments Over A Longer Term

If you’re falling behind with payments and have spoken to the lender, they sometimes allow you to make up the missing payments over a longer period. This will likely come with additional fees or interest charges to make up for it, but it can prevent foreclosure and be helpful in a tight situation.

Make A Separate Loan

Some people might prefer to get a separate personal loan in order to cover repayments for the short term future, however, this option should only be considered if you are guaranteed that financial situation will improve. Otherwise, you will be unable to make repayments on not just your mortgage but another loan as well, which adds a lot of stress and pressure.

Staying On Top Of Your Finances

Having a mortgage is one of the biggest responsibilities you’ll ever commit to in life, and it’s not something that should be entered into lightly. Although there are times when our finances are simply out of control due to a loss of job or change in our family circumstances, a foreclosure should only be seen as the last possible resort.

For Sale Sign In Front Of The House

There are plenty of things you can do before it gets to this point, and speaking to your lender might even give you more suggestions about how to stop a foreclosure. This is not an ideal situation for a bank or financial institution to be in either, and so they try to avoid the process where they can.

Once you’ve experienced a foreclosure, it will be near impossible to ever be able to purchase a home again as your credit score will have taken quite a hit. Therefore, it’s best to explore all other avenues so that you can keep your house and keep a relatively good credit score should you ever need anything else in the future.