If you’re facing foreclosure on a house, you may feel overwhelmed, intimidated, and scared of losing the home you love. Is it possible to escape this situation? And if so, what steps should you be taking now?
When Does Foreclosure Happen?
First, why does foreclosure happen? When you purchased your house, you took out a mortgage from the bank. Most mortgages are secured with the property, meaning if you fall behind on payments, or if you find yourself unable to pay back the loan, the bank can reclaim the property. If you still owe significant money on the debt, the bank may be inclined to seize your home, sell it, and recover the debt with the proceeds, rather than waiting on you to repay the loan.
Banks can hypothetically file a foreclosure after the first missed payment, but this doesn’t usually happen. Foreclosures are a pain for most banks, so these institutions try to delay the process as much as possible. Typically, you’ll need to miss several payments before a bank attempts to foreclose on your home.
The Short Answer: Can You Escape Foreclosure?
Here’s some good news: it is possible to escape foreclosure. Just because the bank has declared their foreclosing on your house doesn’t mean you have to give up the property.
That said, the best way to avoid foreclosure is to prevent yourself from falling into a bad financial situation in the first place. That means only buying a house that you can truly afford, improving your income stream, and budgeting carefully so you don’t miss any home payments.
Steps to Take First
If you do fall behind on your mortgage payments and you begin facing foreclosure, these are some of the most important steps to take first:
- Hire a lawyer. Hire a lawyer as soon as you can. Your lawyer will be able to help you understand the terms and conditions of your loan, the foreclosure process, and all your available options, such as loan modification or bankruptcy. They’ll also serve as your professional counsel, guiding you through the foreclosure process.
- Negotiate a repayment plan. Consider negotiating a repayment plan. Banks don’t actively want to take your house; they’d rather make sure you pay what you owe. Most banks will be willing to suspend or stop the foreclosure process if you demonstrate that you’re capable of paying your missed payments back and making payments on time in the future. You have some wiggle room in this negotiation, so try to push for terms that are favorable to you.
- Ask for a forbearance. You may also apply for a forbearance. In a forbearance arrangement, the bank may allow you to miss or delay some payments on your home. The length of the forbearance and other variables related to the forbearance will all be negotiable, so work with your bank to come up with a plan that you can genuinely follow.
- Apply for a loan modification. Depending on the situation, it may also benefit you to apply for a loan modification. The loan modification works the way it sounds; once both parties agree to new terms, your home loan will be changed in some significant way. That could mean fixing your interest rate so it’s no longer variable, lowering your interest rate, or reducing or eliminating certain fees to make your monthly payments more manageable.
- Consult with a specialist. The Department of Housing and Urban Development (HUD), has approved of housing counseling agencies all around the country. You can work with one of these counseling agencies to get more advice and direction on what to do next.
- Sell the home. You can also sell the home to raise the funds necessary to pay off your debts. Depending on the state of the housing market, you may be able to sell it for a profit, paying off your mortgage and using the remaining proceeds to look for new housing. However, you may also have to resort to a short sale, working with the bank to forgive the full debt in exchange for all the proceeds generated by the home.
- Sign the deed over. In lieu of foreclosure, you may be able to sign the deed over to the bank. In this arrangement, you’ll voluntarily give up ownership of the home to the bank, streamlining the process and possibly putting you in a better financial position.
- File for bankruptcy. It’s also possible to file for bankruptcy as a way to avoid – or at least stave off – foreclosure.
Once your bank has begun the foreclosure process, there’s no absolute guarantee that you can stop it and get your home back. But there are several steps you can take to improve your chances. Start making these efforts as early as possible, so you have plenty of time to experiment and find an approach that works for you.