The consequences of foreclosure have long-reaching effects that carry over into your personal and financial life for many years. Foreclosure and the hits to your credit score leading up to a foreclosure add up over time and can increase the costs of everything you buy that is tied to your credit: credit cards, bank loans, cell phone rates, insurance, and more. So many things in today’s world are tied in some way to your credit score and that is affected in negative ways by missed payments and foreclosures. Most housing providers will look at your credit report before renting to you and some employers are interested as well.
What is a Foreclosure?
When you buy a house you sign a lot of things, but in particular, you sign a promissory note which is your promise to pay the loan back and a deed of trust (in Missouri) or a mortgage (in Kansas) depending on the type of lending laws governed by your state. That deed of trust or mortgage is recorded in the public record and it outlines what you agree to do as far as making payments, upkeep, paying taxes and it also outlines what happens if you don’t pay as agreed. It governs how your lender can foreclose on you either through a court process with a judge (judicial) or without a judge (non-judicial.)
Why Foreclsoures Happen
It’s not rocket science . . . most foreclsoures happen because the borrower does not pay their mortgage. Why they can’t pay can vary . . . right now many are not paying due to the COVID Pandemic and these folks have actually had a lot of federal help with forbearance plans required by their lender that allowed them to not pay, but many of these plans are phasing out and as of April 5th the CFPB states that “The number of homeowners behind on their mortgage has doubled since the beginning of the pandemic, as 6% of mortgages were delinquent as of December 2020“
Beyond COVID, people get into foreclosure because of job loss, catastrophic expenses often due to medical bills, divorce, or the main bread winner passes away.
How do Foreclosures Work
Despite what some articles by our competitors will have you believe, if you are in foreclosure it’s not like you miss a payment today and get kicked out on the street tomorrow. No it is a slow process, which gives you a long time of worry and stress, but it also gives you time to come up with a solution.
While the foreclosure process is going to vary from state to state and lender to lender, they will all start with your lender or servicer sending you a notice that you have missed a payment. If you have just missed one or two payments due to a short term issue and are now able to pay, CALL YOUR LENDER and work out a plan to catch up the missed payments, they will work with you and the sooner you work with them and get a plan, the cheaper it will be as all legal costs they incur or fees they have to pay to have someone drive by your house and tell them what it looks like, all of those fees get passed on to the borrower. So if you act quickly, those fees can be prevented.
After a few notices, then they will have an attorney send you some sort of demand letter or acceleration letter that will let you know that an attorney is now involved and starting the process. This is usually about month 3 or 4 of missed payments and this is when the majority of the legal expenses start getting added on. After this point, when courts are functioning at normal capacity the process to the actual foreclosure proceeding can speed up to as little as 21 days in the state of Missouri to a year in others. This is the time frame for the actual foreclosure process itself.
But even after foreclosure, you still have time in the house. In judicial states, like Kansas, you can have a right of redemption, which allows you to still get caught up with your lender (or sell the house.) And even after there is no time left for you to save your house, you should still stick around as most lenders might offer you cash for keys where they pay you to move out. And as a last resort, they would have to evict you, which could give you another couple of months in the house.
How to Avoid a Foreclosure
The best way is to just pay your mortgage. What ever you decide to do, ALWAYS, keep in touch with your lender. The more you make yourself available to them and work with them, the better your ultimate outcome.
Avoid Foreclosure and Stay In Your Home
- Bring Your Mortgage Current by paying with other money.
- Loan Modification, talk to your lender as there may be government or lender offered programs that will allow you to modify your loan in some way that would defer missed payments and make future payments more affordable.
- Forbearance, for the past year or so almost all lenders were required to offer forbearance, which allowed you to not pay your loan and then have the missed payments either due at some point in the future or tacked on to the end of your loan.
- Refinance, while this may not be an option if you have missed a lot of payments and lowered your credit score, if you are just getting into trouble you may be able to refinance with a new or current lender to lower interest or extend out the time frame on your loan and make the payments more affordable. There may even be special programs to help you refinance depending on the type of loan you have.
Avoid Foreclosure, but Sell Your Home
- Have Equity. For those homeowners who have equity in their home, meaning the value of their home is higher than what they owe on the home, they may just be able to offer their home for sale. They can market it for sale by owner or if they have enough equity to pay a real estate agent, they could list it with a professional. Then sell it and pay off their mortgage, but you will have to move out.
- Have No Equity. In other cases, homeowners may owe more on their home than the current value. Many in this situation think they are stuck and that they cannot sell their home, but there is still hope. Most lenders will work with you to negotiate a short sale, whereby you are allowed to sell the home for less than what you owe. There are a lot of regulations governing this and there can be tax consequences. So be sure to talk to your lender, a short sale expert, and a tax advisor.
There are thousands of resources on short sales on the internet. They have been around for a very long time and became a HUGE business that exploded and gained a lot of rules and regulations during the great recession. But basically, you would need to contact your lender and ask about a Short Sale. They would then most likely provide you with a short sale package that explains their process and rules.
We highly recommend working with a real estate agent who are familiar with the process to help you navigate and to get the best price for your home. They would list it for sale in the MLS and market it for sale. Once you have an offer, they would submit the offer to the lender for approval, this could be a short process or it could take months.
Another option is to just do nothing. It is not an option that we recommend. But the majority of people take this route. They ignore the letters sent by their lender, their servicer and the attorneys. They ignore the letters from lenders offering to help the refiannce, investor buyers offering to purchase and Realtors offering to sell the home for them. They wait until the house is foreclosed, the eviction process is completed and the sherrif comes to the door to set them out. This option causes the most stress, completely destroy’s credit, puts an eviction on your record and often comes with a huge tax bill at the end.
As with anything, when someone is in financial trouble there are a ton of people across the industry that can and so help and along the way earn a profit: real estate investor buyers, realtors, lenders, consumer protection companies, and more. And while most of these folks are legitimate business people wanting to offer you assistance to make a profit, some may be a scam, and while others just don’t know what they are doing. So before accepting help, do a bit of homework on the company or person to avoid a foreclosure rescue scam – how long have they been in business, what kind of reviews do they have online, have they actually helped real people like you, do they have references from not only past clients and customers but from others in the industry.
Want to end your foreclosure worries today? If you are at the point where you want to or know you have to sell your home, give us a call. We are cash buyers for homes and if you have equity we may be able to simply buy your home, we can also talk to your lender to see what your options are, and if you are in need of a short sale, we have a select group of expert short sale Realtors that we work with that can help you through the process of a short sale. To get started, tell us a bit about your house and situation or give us a call at (816) 408-3600.
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I highly recommend.
We got a letter from Kim about Dad’s house a few months ago after one of our garage sales. Her son Scott called us back, asked a few questions, looked our house and made an offer. My brothers had been trying to fix it up to sell for almost a year . . . that was not going well. We took Scotts offer, he made the process very easy and convenient, we could even sign things via email. We didn’t have to finish cleaning out the house, we didn’t have to make any repairs and no more going to mow the yard.
I highly recommend giving Kim or Scott a call, you will be glad you did.