Avoiding Foreclosure: National Moratorium Has Expired

The moratorium that had helped thousands and thousands of distressed American homeowners expired last month. The national ban on mortgage foreclosures had protected financially downturn homeowners at the start of the global health crisis last March 18, 2020. Initially the moratorium was extended but was eventually allowed to expire last month.

The state of New York along with other states still has foreclosure bans, but in most parts of the country, homeowners who are financially struggling are once again at risk of being forced out of their homes.

Foreclosure can be a traumatic experience and very disastrous for every homeowners. However such painful event can be avoided, and there are some legit guides and tricks that can help you prevent this from happening.

If you are just starting to feel the effect of the COVID-19 pandemic and have been falling behind on your monthly mortgage payments or you have already received a notice of default, do not despair, there is still some ways to help you out. DO NOT GIVE UP just yet, there is still hope.

Here are some guides and options which can help you out in stopping the foreclosure process:

It is very vital to remember that each state has their own set of laws regarding foreclosures, thus it is imperative that you check your area for whatever directions your lawmakers have taken.

The very first step to fighting a foreclosure proceeding is to understand the laws governing it, and at the same time you have to know what your rights are as well. Know the law where you are residing.

Also regardless which foreclosure fighting method you decide to pick, you have to be sure that you keep track of your documents. Make sure that all your records, documentations of your actions, phone calls, emails, letters, bills and the likes are detailed and organized, not to mention in order. Having all of these in place to prove what you want to present can be helpful in saving your home. These documents can serve as your evidence which can further strengthen your case.

So, here are the strategies and ways that could help you out:

1. Foreclosure Workout

Just like any homeowners, lenders do not want to be caught in a foreclosure situation. It can cost them time, money and lots of resources. They want to cash in their investments as soon as possible and being entangled in a foreclosure proceeding can be detrimental in their financial health. Furthermore, they too hate seeing homeowners being forced out of their homes.

And because of this, a lot of lenders are usually helpful with their borrowers, working out with them on how to come up with a viable solution without having to go into the dreaded foreclosure process. They are willing to go into a “Workout Agreement” with their lender. This usually involves rescheduling payment or they can extend the terms of the loans.

Always bear in mind though that despite it may be in the financial institution’s best interest, your lender or mortgage service provider is under no obligation to help you out. It is vital and really important to stay flexible and at the same time be open-minded. In the end, you want to create a scenario that is beneficial mutually, meaning, you get to keep and stay in your house, and the lender will not have to waste their time and money and avoid the hassle of foreclosure.

2. Short Sale

This is also known as a pre-foreclosure sale. In a short sale, the borrower can sell his house for less than its actual value before the bank can take it back and auction the property off. However, you cannot do this process just like your regular home sale. In a short sale, the borrower has to get the approval of the lender that the house has to be sold at a discounted price or for less than the market value. Furthermore, the borrower has to present a show cause letter or anything that he or she is in financial downturn and can no longer continue paying the mortgage. The lender will then decide to whether go for the short sale or proceed in foreclosing the property.

If you are the borrower, you have to do everything in order to have a potential buyer and negotiate for a short sale. By avoiding foreclosure, you can have some breathing space without totally damaging your credit score. Remember, both foreclosure and short sale will have an impact on your credit score, the former though has a more damaging effect than the latter.

3. File for Bankruptcy

If you were not able to get the approval of your lender for a short sale, the next best thing that you can do is file for a bankruptcy. This though should be your last viable option, and doing so generates n “automatic stay” which basically prevents any foreclosure and any other collections from progressing. Consulting with a lawyer who is an expert in this kind of situation can help you a lot. With a lawyer’s help you can now determine your best option and choose what type of bankruptcy to file:

• Chapter 13 bankruptcy is filed before your home is officially foreclosed, this in an attempt to restructure your loans and prevent from being forced out of your home.
• Chapter 7 bankruptcy can also be filed in order to delay or stall the foreclosure process. Filing  Chapter 7 can give you some breathing space and allows you to stay on your house, at this point, rent free. This also lets you save money for rent payments for the next place you are going to.

Once your automatic stay starts, the bank or lending institution will then file a motion to waive the stay and continue with the foreclosure proceedings. And even if they are successful with their motion and with their plea, you, by the time their motion is approved, would have save enough money and have bought some time.

And even if your automatic stay is granted, it does not mean that you are not going to pay your debt. You are not going out clean. At the court hearing, the bankruptcy trustee who will also act as a mediator between you and your creditors will try to come up with a viable modified repayment scheme.

4. Deed in Lieu

This is short for “Deed in Lieu of Foreclosure.” This is technically a more civilized version of a foreclosure.  Instead of being forcibly taken out from your home by your lender, you voluntarily hand them the keys to your home, signing a deed.

Deed in Lieu is also as damaging as a foreclosure on your credit score. This however is more discreet, which is its main benefit for those who opt to grab this strategy. Filing this allows you to leave on your own terms and the police cannot just knock on your door and order you to leave the property.

Despite the hassle saved on a foreclosure, a lot of lenders are having doubts or are cautious in allowing a deed in lieu. Not only does this make them responsible for paying off any additional loans against the property, it can also come back to them should the borrower decide to bring the case to court stating that you do not comprehend anything that you are doing.

5. Assumption or lease option

If you sell your house, the buyer will have the responsibility to take out the home loan in order to pay you. The money is then used to pay off or clear whatever balance you have on your mortgage.

An assumption is a bit different. Instead of having the buyer take out a new mortgage, the buyer will be the one who will assume the responsibility of your loan.

In theory this strategy seems to look perfect, however this isn’t flawless since most mortgage contracts comes with a “due-on-sale” clause. This means that you have to pay off your entire balance if you decide to transfer ownership of the property. But some lenders may overlook or can turn blind to this clause especially if this is financially advantageous for them. 

If you are qualified or entitled to use an assumption, your lender will have to check and assess the buyer’s financial history. This is to make sure that the buyer is capable to purchase the house and take over your loan.

Should the buyer failed to make the grade, maybe due to poor credit score, low down payment or for whatever legal reasons the lender saw, you can still negotiate for a lease option. This arrangement allows the buyer to rent the house and continue making the monthly payments. You will still retain the ownership of the property until such time the would-be buyer is eligible to purchase the property.

 Stay away from Foreclosure before it can start

When it comes to stopping the process of foreclosure, you, the homeowner, should nip the situation right in the bud. That would be your best bet. And instead of waiting for the bank to hand you the notice or you, waiting for the last second and filing for a desperate bankruptcy prayer, you can call your lender and apply for a loan modification before you reach the point of no return.

What is a loan modification?

This is one of the many types of loss mitigation strategies or compromises between the borrower and the lender in order to avoid a situation where both may actually lose at the end – in this case a foreclosure.

When you decide to go for a loan modification, you are asking the lender to change the terms of your mortgage in order to make it lighter and more viable for you to make your payments. This can be in many forms and types, some modifications can be permanent and there are modifications that are just temporary.

Typically, these loan modifications can involve lowering the interest rate, extending the length of the mortgage or adding any unpaid interest to the principal.

To maximize this loan modification scheme, you cannot procrastinate. It is for your own good that you talk with your mortgage provider about the various payment schemes as soon as possible or once you feel that you can no longer keep up with your monthly mortgage payments.    

When is it too late to prevent foreclosure?

We have provided you with various options and strategies to mitigate foreclosure. However there will be that time when you have to give up.

It is too late to stop foreclosure when your house is sold off.

Despite your house being on an auction, you can still stop or at least stall a foreclosure by filing a foreclosure. If you cannot present your capacity and intent to catch up on your payments, filing a bankruptcy will not be a big help to you. It will not stop the process of foreclosure forever, but filing for a bankruptcy saves you time and money.

Whatever that you are planning to do, do not force yourself out of your home prematurely – not just yet. Do not leave your home. You have to wait for the foreclosure and when you are finally asked to leave the premises. And as it turns out, just because you have the foreclosure notice already, it does not mean that the process of foreclosure can proceed as you might want to think. If you think that your lender has taken over the ownership of your property, and you leave the property vacant – otherwise known as “Zombie Foreclosure,” you are missing out on free rent and you are also putting your finances at risk.

Now you see, the process of foreclosure can still be prevented, and in some cases, it can even be stopped altogether. If you decide to leave your home prematurely, and the foreclosure did not materialize, the property will technically still be under your name. And without you realizing it, you could be racking up on real estate property taxes that you failed to pay and unpaid maintenance fees for a property that you have left earlier.