As a homeowner, the events that lead up to your potential foreclosure and eviction can be financially and emotionally devastating. To save your home from foreclosure, you must first become familiar with how the foreclosure process works. The foreclosure process begins with mortgage default, before it is divided into the three separate stages of pre-foreclosure, foreclosure auction, and real estate owned. During the pre-foreclosure stage, you will take steps to save your home and avoid inflicting further damage upon your credit report.
Mortgage Default
Your full mortgage payment is likely to come due on the first of each month. The mortgage payment due date does come attached to one 15-day grace period. The lender will tack late fees on to your account, if it has not received your mortgage payment by the time the grace period expires. After 30 days of missed payments, the mortgage falls into default and you will be reported to the major credit bureaus. At that point, the foreclosure process starts off with the pre-foreclosure stage.
Pre-Foreclosure Stage
In most states, the pre-foreclosure stage lasts for a total of 150 days. In pre-foreclosure, your mortgage has fallen into default, but your home has yet to be seized and auctioned off. During pre-foreclosure, you can expect communications to increase between yourself and the lender. On the telephone, you will field phone calls from lender representatives who will demand and explanation for your late payments. In the mail, you will receive a notice of default and demand letter, which both order you to immediately bring the mortgage loan back current. To save your home, you may attempt to negotiate a loan modification in pre-foreclosure.
Loan Modification
According to the U.S. Department of Housing and Urban Development, a loan modification describes a permanent reduction in your home loan principal and interest that results in an affordable mortgage note. In terms of affordability, you should look to structure a deal that results in a monthly payment that is less than 30 percent of your monthly gross income. To do so, you will put together a loan modification proposal.
With the loan modification proposal, you will assemble recent pay stubs, banking statements, and outstanding credit paperwork. Please bear in mind that the bank will analyze your financial records to ensure that you have exhausted all financial resources available — in an attempt to meet the terms of your current loan. You should therefore eliminate consumer spending from your budget and sell off investments within taxable brokerage accounts — to raise cash prior to your loan modification negotiations. Your chances for securing the loan modification should increase, if your home has lost significant value and you are upside-down on the mortgage. At that point, the bank may agree to write down your mortgage principal to match the value of your home. Be advised, however, that the bank operates with its own best interests in mind and is under no obligation to approve of any loan modification.
Pre-Foreclosure Sale
To open up your options, you should also put your home up for sale while a loan modification deal still remains in play. To attract demand and expedite a sale, you should offer the home at a 10 percent price discount to comparable real estate. A savvy buyer is likely to demand price concessions on your part, if the home is due for minor repairs because you lacked the funds for general upkeep as a distressed buyer. The pre-foreclosure sale, of course, may be further complicated if you owe more on the home than it is worth. You would then be forced to negotiate a short sale between yourself, the buyer, and the bank. In a short sale deal, the bank must agree to accept less cash for the home than its outstanding mortgage balance due.
Foreclosure Auction
The bank will publish a notice of sale in the local newspaper, if you cannot arrive at a mortgage settlement through a loan modification or home sale, after 180 days of missed payments. The notice of sale announces a time and date for your home to be auctioned off. The foreclosure auction date typically falls within 30 days of the notice of sale filing. The bank will repossess the home as real estate owned (REO), if nobody emerges to make a successful bid on your property. Immediately after the foreclosure auction, either the bank or the home’s new private owner can file an eviction lawsuit and 30-day notice to quit — to have you removed from the premises.
Help! How Can I Save My Home From Foreclosure – Sources:
RealtyTrac: Foreclosure Overview and Foreclosure Process
U.S. Department of Housing and Urban Development: Loan Modification FAQs
Investopedia: Real Estate Short Sale Definition
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