Dabl at Home
Avoid Foreclosing On Your Property Before It’s Too Late!
With foreclosures increasing throughout the country, here’s what you can do to get back on track with making your monthly mortgage payments or how to sell before it’s too late.
By: Catie Kovelman, Updated 05/11/2022
When you don't pay rent to your landlord each month, you could be evicted from the apartment or house you are leasing. But when you neglect to pay your monthly mortgage payments, your lender can evict you and take possession of the property to recoup their funds through a legal process called foreclosure. During the foreclosure, your lender will re-sell your home in order to recover the balance owed on a defaulted loan. As you may have already guessed, foreclosure is a nightmare process that forces you to find a new place to live and lose out on much of the profit from the sale of your house. In fact, you'll only receive profits from the foreclosure of your home if there is excess money beyond what is necessary to pay the outstanding balance of the loan plus the costs associated with the foreclosure and sale.
Despite foreclosure being one of the last things a homeowner could want to happen, recent data shows that foreclosures are on the rise. The number of active foreclosures climbed to more than 7,000 in March, which is the first year-over-year increase in nearly a decade. Additionally, foreclosure filings from the first quarter of 2022 are up by 132% when compared to the year prior, and mortgage delinquencies are 70% higher than they were pre-pandemic. This is likely a result of the negative impact the COVID-19 had on the economy and high unemployment rates, although it feels reminiscent of the housing crash in the early 2000s. But if you are a homeowner who is facing foreclosure, you don't just have to sit by and let it happen. You have options to save your home and your finances from financial ruin as long as you are proactive.
Individual state law dictates how the foreclosure process works in each state. Even with the variation, the foreclosure process can still take anywhere from a few hundred to a few thousand days to complete. Before the process even starts, you'll receive multiple warnings from your lender, such as a demand letter, to allow you to take action before a notice of default is filed and your home loan is transferred to your lender's foreclosure team. In other words, you have plenty of time to react and take action in the name of foreclosure prevention.
Work with your lender.
It's easy for a missed payment or two to turn into significant mortgage debt in this day and age, but that doesn't mean you're out of options. The best-case scenario is for you to be able to fix your finances and stay in your home. Most lenders want this for you as well, and will be willing to work with you before instigating the foreclosure process. You generally have 90 days, or 3 missed mortgage payments, before a notice of default is filed and the foreclosure process begins. However, even then some lenders will be willing to help you get back on track. After the notice of default is filed, the homeowner is warned again and has 30 days to make up the missed payments in what is called a "reinstatement period."
If you are struggling to make up your missed mortgage payments, talk to your lender about other options that may be available for you to prevent foreclosure. Ask if you are eligible for a loan modification that makes it easier to make your monthly payment. Some lenders will agree to a short refinance, where you are given a new loan that is less than the outstanding balance. In an act of good faith and to avoid foreclosure, the lender will forgive the difference in amounts. Additionally, you can appeal to your lender for a special forbearance if you are undergoing a temporary financial hardship, such as paying off high medical bills or have suffered a sudden decrease in income. If the special forbearance is granted, the lender will agree to reduce or suspend your loan payments for a specified length of time.
Your last option, aside from selling your home while you still can on your own terms, is to tap into your home’s equity. If you use a smart loan alternative, you can receive up to $400,000 to help you fix your financial situation without going into more debt. However, read all the fine print carefully because the trade-off may be that the loan provider will eventually be compensated with a percentage of the future value of your home.
Get out while you’re ahead.
If you are consistently struggling to make your monthly mortgage payment, it's probably a good sign that you are living beyond your means and it would be prudent to list your home on your own terms before the foreclosure process forces you to sell and takes much of the profits. When a foreclosed property is sold, the lender's goal is to make enough money to recoup what the borrower owed. If you sell your home yourself, you will have control of the deal and have a chance to make a profit.
Even with the rise in foreclosures, the real estate market is more competitive than ever. People are eager to buy homes, and many nice properties in desirable neighborhoods receive multiple offers and sell for over-asking. Even if you feel pressure to list your home immediately, take at least a bit of time to prepare your home prior to showing it to potential buyers to maximize its value. Here are some steps you can take to make your property extra appealing:
1.) Make a good first impression with your curb appeal and landscaping.
Make sure the exterior of your home looks beautiful and well-maintained. This will create a good first impression with potential homebuyers. Take the time to make any outdoor repairs, handle any yard or exterior maintenance, and spruce up your garden prior to taking photos of your property for the listing and showing it to interested buyers. Consider doing the following:
2.) Stage your home correctly.
When a potential buyer enters your home, you want them to picture themselves living there and like what they imagine. Take time to stage your home correctly, remove distracting clutter and personal items, and rearrange furniture to make the living space appear larger. Click one of the links below to learn exactly what to do!
3.) Prepare for inspections.
There is a lot of negotiation that goes into buying or selling a home. First, there is a lot of negotiating that goes into countering offers before deciding to accept. Then, you may need to negotiate again in order to convince your buyer to release their contingencies. For example, unexpected damage or problems that are identified during the home inspection may lead to the buyer requesting for the seller to make the repairs or lower the home’s purchase price as compensation. In order to make the escrow process easier, consider conducting your own home inspections or appraisals so you can identify and fix major issues before they have a chance to derail your deal. Click here to learn more about home inspections and click here to learn more about home appraisals.
Finally, remember that every situation is unique. If your home is at risk of becoming the next foreclosure sale, make sure to speak with your mortgage broker or schedule a consult with a qualified attorney for legal advice.
Learn more tips and tricks for buying or selling homes at the Dabl Real Estate Hub!