Foreclosure Problems and Solutions – An Essential Guide

Foreclosure is a legal process used by mortgage lenders to sell a home if the owner is in default on his or her mortgage loan. A lender usually goes for the foreclosure when the homeowner has not made his payments. This process usually varies from state to state.

For instance, in some states, a foreclosure must go through a legal court process before the lender sells the property. On the other hand, the foreclosure sale is usually done by advertisement in other states of the country.

Foreclosure is a long process, which means the court can evict you from the property. The mortgage company needs to follow some steps and prove their point against you in court. They can’t lock you out of your home without a court’s order. Read on!

Foreclosure Facts – The Dark Side

• In the U.S, 2 out of every 150 houses will be foreclosed upon. In some cities like Washington DC, research shows that over 3,000 households lose their houses to foreclosure each year.
• According to the Mortgage Bankers Association, more than 250,000 new households enter into foreclosure every three months in the U.S.
• One child in every classroom is at high risk of losing a home because his or her parents can’t pay their mortgage.
• A slow real estate market translates into falling home values and prices.
• Many people who applied for adjustable mortgage rates find that as the rate of the mortgage adjusts higher, their house value becomes lower. For such people, refinancing is not an ideal option.

How Foreclosures Affect Homeowners?

Foreclosure has numerous negative effects on a homeowner. For instance, the forced loss of a home can cause a homeowner to feel sadness and shame. Most often, the situation is behind your control, still, this process carries the stigma of personal irresponsibility.

·       Equity

Foreclosure usually involves surrendering your home, irrespective of what you owe. Any equity in the house becomes the lender’s property. You lose the down payment and the value of any home improvements that you have made. If your home sells at a loss, the lender can sue you to recover funds.

·       Credit Score

According to the Mortgage Bankers Association, foreclosure significantly affects your credit score. You may lose up to 40% of your credit score by the time the process of foreclosure is complete. Both notices and judgments, which are related to the foreclosure process can pull down your credit.

·       Credit Availability

Since foreclosure damages your credit, it is hard to get credit for a few years. Even if you get credit, it will come with lower limits and higher interest rates. You can apply for a secured credit card but the company will hold a deposit equal to the credit limit.

·       Taxes

A foreclosure can also have negative tax ramifications. This depends on your personal situation. For example, any losses accrued by the mortgage lender on a foreclosure or short sale are considered as income for tax purposes.

The Internal Revenue Service (IRS) requires the homeowner to pay taxes on the increased income. This raises the burden of taxes and put the homeowner in a high tax bracket. When the mortgage lender sells your home at a profit, you will be liable for taxes on the profit.

·       Employment

Most often, companies check the credit of employees during the review time. The negative credit and foreclosure can impact your job as well as make your work situation harder. If you apply for a job, the HR hiring team may ask whether or not you have undergone a foreclosure and if they find out about it, they may not hire you.

·       Emotional Impact

You may not contact your lender because you are embarrassed. You don’t believe the lender will help you or think that it would cause you to lose your home more quickly. A recent research study shows that foreclosure impacts homeowners emotionally. According to the results of the study, 35% felt depressed, 38% were scared, 9% angry and 8% were embarrassed.

How Foreclosure leads to Home loss?

When an individual buys a property, such as a house, he or she may not have sufficient funds to pay the entire purchase price. On the other hand, a homeowner can pay a small amount upfront, which is anywhere between 5% and 20% of the price.

You still owe the lender thousands of dollars. The problem is that most people do not earn this much money annually. So, as part of the agreement with the lender, your property will serve as collateral for the loan.

If you don’t make payments on time, the mortgage lender may foreclose on your home. This means the lender can repossess it and evict you. In many situations, the lender sells your home to recover the funds or money they lent you.

In general, you will start receiving notices as soon as you miss making one payment. You may receive a notice that asks for moving forward with the process of foreclosure. A lender initiates the process of foreclosure 3-6 months after you fail to make the first mortgage payment.

After you have missed making payments for 3 months, the lender will send you a “Demand Letter” requesting payment with a month. If you still fail to make the payment, the lender will consider your loan in “Default” and this is when things get complicated for you.

If you can’t prevent foreclosure, the lender will make your home available to the highest bidder at the auction run by the court. If no one buys your home, the lender will take the ownership. If you are still living in the house, you may face eviction. Make sure you understand the law so that you know how long you can stay in the house after the process of foreclosure.

How to Avoid Foreclosures?

If you can’t make your mortgage payments, you will face the issue of foreclosure, which means you will move out of your home. Besides, if your home is worth less than the amount you owe on the mortgage, a deficiency judgment can be pursued.

In such a situation, you will lose your home as well as owe your mortgage lender an additional amount of money. The question is “how to avoid foreclosure?” Here are a few tips that can help you overcome the problem.

·       Contact Your Lender

You must contact your lender when you have a problem. The lender doesn’t want your house and has options to support you through harder financial situations.

·       Respond To Mails & Letters from the Lender

When you receive the first notice, it offers you some good information about the prevention of foreclosure. This notice will give you guidelines and options on how to avoid a foreclosure.

Some options can help you to overcome financial issues. This means the initial notice won’t hurt. However, if you still fail to make payments or ignore the alternative options, you will receive further notices, which are about pending legal actions.

·       Become Familiar with your Mortgage Rights

Make sure you find the loan documents and go through them properly. This way, you will come to know what the lender can do if you fail to make your payments. You must also learn about the laws related to foreclosures.

Once you are familiar with your mortgage rights, you can negotiate with the lender to come up with a middle way that will help you avoid the catastrophic situation and its long-term effects.

·       Prioritize your Spending

Keeping your home should be your top priority after healthcare. Make sure you review your finances and analyze where you can spend appropriately and cut your spending to make your mortgage payments.

For example, you can eliminate a few things that cost you extra money – such as online memberships, cable-TV subscriptions, etc. You must delay payments on your credit cards until you have paid the mortgage.

·       Use Your Assets

If you have assets such as jewelry, a car, a life insurance policy, you can sell them for cash to reinstate your loan. Contact your family members, friends, or relatives. Ask them if they can get you to lend you some money. Also, is there anyone in your family who can get another job to bring in extra income?

Although these efforts are appreciable but most often, they don’t increase your income significantly. However, your efforts can demonstrate to the lender that you are doing whatever it takes to keep your home.

·       Avoid Scammers

You must avoid companies that offer foreclosure prevention services. There is no need to pay extra money for foreclosure prevention help. Instead, you can use this money to make your mortgage payments.

Many companies will contact you and promise to help you negotiate with the lender. While these companies may be legitimate, they may charge you a huge fee. Sometimes, the fee is a hefty amount that equals 2-3 months of your mortgage payment.

Alternative Solution – What To Do If Everything Else Fails?

You have done everything to avoid foreclosure and keep your home. However, you can’t avoid the situation. The worst thing is that if the lender sells your house for a higher profit, you will be the one responsible for paying higher taxes. It is because you owe them mortgage money.

So, what is the best solution when everything has failed? Well, the most optimal way to avoid foreclosure or financial burden is to sell your property to a home buying company. They buy your home in its current condition and pay you fast cash, which you can repay to the lender and avoid all the problems associated with the foreclosure.

Why You Should Choose A Home Buying Company?

Selling your home involves various procedures like depersonalizing, de-cluttering, and renovation. When you are on the verge of facing the worst catastrophic situation like foreclosure, it is ideal to sell your property to a home buying company. You need fast cash to repay the mortgage to the lender and for this, there is no better solution than choosing a home buying company. Continue reading!

Sell Your House “As Is”

Companies who run the “we buy homes” businesses buy properties even if they have not been renovated. Obviously, you can’t remodel your house because of the lack of funds, you can contact a house buying company. They will visit your home and give you a reasonable price. If you agree, they will start the process and pay you cash within a few days. Some companies even pay within 24 hours.

Get Fast Cash

A home buying company has the cash to pay for your property on the spot. If the deal is reasonable, you must say “Yes” to them immediately. For instance, if your lender wants the money by the end of the week, you must prioritize selling your home quickly for fast cash so that you can pay the lender.

No Commissions

A home buying company does not charge extra money. Unlike real estate agents who make commissions on a property sale, you can avoid the hassle and sell your home directly to the company that pays in cash on the spot.

Quickly Closes Deals

A home buying company can quickly close deals. One of the primary reasons why home sales take long is due to the paperwork. Also, it is hard to find sure buyers and sometimes, you think the deal is final, the buyer may pull out suddenly. All this leads to frustration.

In contrast, a home buying company takes away this hassle and takes care of the payment along with all the paperwork. After you have said “Yes” to their deal, you will be certain that it was a good one.

Avoid Having Foreclosure

This is the best part of selling your property to a home buying company. Aside from getting fast cash, you can completely avoid the foreclosure in your records. The home buying company will take care of that. This allows you to create life back up with fewer issues. This, surely, is a sigh of relief.