What To Do If You Are Facing Foreclosure

If you're facing foreclosure, don't panic. Take steps right now to save your home or at least lessen the blow of its loss.

Foreclosure Moratoriums Could Be Extended

Foreclosures may be banned until 2022 if a new rule from the Consumer Financial Protection Bureau goes through.   The rule — which the CFPB says would benefit both underwater homeowners and mortgage servicers — would prohibit servicers from initiating the foreclosure process until after December 31 of this year.

This would allow for streamlined loan modifications to help post-forbearance homeowners get back on their feet.  If you are facing foreclosure, call your lender to determine your options, which can include loan modification, forbearance, or a short sale.

When Will Foreclosures Resume?

There’s no word on how quickly foreclosures would pick back up after the December 31 deadline passes.  In fact, the CFPB says there may even be situations when it will “permit earlier foreclosures” if the servicer has made certain efforts to work with the borrower or has been unable to reach them.

Another consideration is the lengthy processing periods that come with foreclosures, which — in some states — require full-on court proceedings.

Foreclosure Process Takes Time

The entire foreclosure process can take anywhere from two to 12 months, depending on how fast your lender acts and where you live. Some states allow a nonjudicial process that's speedier, while others require time-consuming judicial proceedings.  

Meanwhile, if your goal is to salvage your home, think about keeping up with payments for homeowners insurance
and property taxes. Otherwise, you could compound your problems by getting hit with an uncovered casualty loss or liability suit, or tax liens.

Once you miss at least one mortgage payment, the steps leading up to an actual foreclosure sale can include demand letters, notices of default, a recorded notice of foreclosure, publication of the debt, and the scheduling of a foreclosure auction. Even when an auction is scheduled, however, it may never occur, or it may occur but a qualified buyer doesn't materialize.

Bottom line: Foreclosure can be a long slog, which gives you enough time to come up with an alternative.  Depending on where you live, there may still be a chance to get current or modify your loan well after the December 31 marker. 

Read the Fine Print

Start by reviewing all correspondence you've received from your lender. The letters--and phone calls--probably began once you were 30 days past due. Also review your mortgage documents, which should outline what steps your lender can take. For instance, is there a "power of sale" clause that authorizes the sale of your home to pay off a mortgage after you miss payments?

Determine the specific foreclosure laws for your state. What's the timeline? Do you have "right of redemption," essentially a grace period in which you can reverse a foreclosure? Are deficiency judgments that hold you responsible for the difference between what your home sells for and your loan's outstanding balance allowed? Get answers.

Pick Up the Phone

Don't give up because you missed a mortgage payment or two and received a notice of default. Foreclosure isn't a foregone conclusion, but it's heading in that direction if you don't call your lender. Dial the number on your mortgage statement, and ask for the Loss Mitigation Department. You might stay on hold for a while, but don't hang up. Once you do get someone on the line, take notes and record names.

Lender Alternatives to Foreclosure

There are alternatives to foreclosure that your lender might accept.  One attractive option that will allow you to keep your home is a loan modification that reduces your monthly payment.  A modification can entail lowering the interest rate, changing a loan from an adjustable rate to a fixed rate, extending the term of a loan, or eliminating past-due balances. Another option, forbearance, can temporarily suspend payments, though the amount will likely be tacked on to the end of the loan.

If you are unable to make even reduced payments, and a conventional sale isn't possible, then it may be best to turn your home over to your lender before a foreclosure is completed.  A completed foreclosure can decimate a credit score, which will make it hard not only to purchase another home someday, but not impossible: The foreclosure disappears within 7 years or even less, especially if there are extenuating circumstances.  The more quickly you get steady employment and repair your credit score, the more quickly you'll be eligible to buy a home again. 

But you're better off if your lender can approve a short sale, in which the proceeds are less than what's still owed on your mortgage. A deed in lieu of foreclosure, which amounts to handing over your keys to your lender, is another good possibility.

Although a deed in lieu of foreclosure or successfully navigating the short sale process will have virtually the same effect on your credit score as a foreclosure, you will likely be able to buy another home more quickly than if you go through a foreclosure. The earlier you begin talks with your lender, the more likelihood of success.

Selling to Avoid Foreclosure

Selling a foreclosed home is an option for many homeowners who have defaulted on their loan.  Up until the home is sold at auction, you can rescue your home by selling it and paying the lender everything you owe, including back payments and penalties. 

• You won’t own your house anymore, but you won’t have the house foreclosed upon, which would do serious damage to your credit.  Of course, making the decision to sell sooner than later will take some of the pressure off the deal and allow you more time to get the best price for the property. Make sure you ask the lender how long you have before the property will go on the auction block. It all depends on which state you live in.

• If you decide to sell, tell your lender that you plan to list the property for sale with the intention of paying off the mortgage. Ask the lender to postpone a foreclosure auction or sale and give you a chance to find a buyer.

Hire a Real Estate Agent

When time is of the essence, hiring a real estate agent should be your first priority so you can figure out how much your home is worth. A good agent can run a market analysis to help you anticipate how much money your home will fetch and if it’s enough to pay off the mortgage.

A real estate agent can also negotiate with lenders to reduce the amount they’ll take in a short sale to rescue the property from foreclosure.