It is more than a house. What you have built is a haven.
Every room is filled with laughter. And the pencil marking in the kitchen, why, they are your sacred records. Height markings for every kid, chronicling their growth.
You can never forget the scratches on the hardwood near the fireplace where you and your spouse danced the night away. Those walls hold your memories.
But foreclosure threatens to take it all away.
This is the story of 95,712 American households in the first quarter of 2023, homes facing foreclosure. When is it too late to stop foreclosure? Is there anything you can do to save your home?
Read on as we explore the steps leading to foreclosure and what you can do about it.
Table of Contents
What Is Foreclosure?
A foreclosure process is a repossession process undertaken by a lender when a borrower has failed to make payments on a home loan.
Before we can dive further into foreclosure, let’s first unpack a home mortgage.
A home loan or home mortgage is a type of secured personal loan that a home buyer receives to finance a home. The collateral attached to this type of loan is the house itself.
Should the borrower default in repayments, the lender has the right to repossess the home. This is foreclosure.
During your home purchase, you should have signed a promissory note. This contract likely outlined the interest rate at which you will repay the loan, the payment tenure, the complete amount including your monthly repayment amount, and a response to default.
The monthly repayment can be broken down into the following factors:
The principal is a portion of the original amount you repay to the lender. Oftentimes, the term of the loan will affect your principal.
Interest is often the lender’s way of making a profit off the loan. Factors such as credit score affect the interest a financial institution charges.
A bad credit score often equates to a higher interest rate.
To guard against risk, lenders often demand that home buyers insure their homes. The insurance is also structured into your monthly mortgage.
The last thing you get out of the way with your repayment is property tax. Your monthly property tax structured into the payment will be 1/12th of your annual property tax.
Should you fail to carry the payment according to the contract established between you and the lender, foreclosure may be on the horizon.
The Phases of a Foreclosure Process
The foreclosure process has six basic steps. Every state has its own foreclosure laws, so there may be omissions or additions to the outlined steps.
Missed Payment Notice
Before any foreclosure process can begin, the borrower would have missed a payment. At this time, the lender will issue a missed-payment notice. The notice is often sent to the borrower after one missed payment.
The second phase of foreclosure is the demand letter. A demand letter is when things start getting serious.
The letter is issued 90 days after the initial missed payment. Simply put, the demand letter comes two months after the missed payment.
There are often several avenues you can take at this stage to stop foreclosure.
Notice of Default
Once you reach the notice of default stage, the lender is probably ready to foreclose. A notice of default will come on the fourth month following the initial missed payment.
The lender will give the borrower 30 days to settle the missed payments. This is the reinstatement period.
Notice of Sale
A notice of sale or notice of trustee’s sale means the borrower failed to reinstate the loan and the lender has decided to put the home up for auction.
The process will differ according to state. For example, 22 US states have a judicial foreclosure. This means in States like Florida and New York, the lending financial institution will have to get court permission to complete the foreclosure process.
However, in 28 other states like Texas, foreclosure is non-judiciary. This type of foreclosure gives the lender the right to proceed with foreclosure without going through the courts.
All that is required from the lender is to file the process.
Should you fail to stop the foreclosure, the second final step is a trustee’s sale. In preparation for the sale, the lender will advertise the auction of the property. Included in the advert is the minimum bid.
The minimum bid is calculated according to the outstanding amount, including taxes and liens.
As a custom in auctions, the person with the highest bid walks away with the property.
The final stage in the sad tale of foreclosure is eviction. As the borrower, you will be issued with an eviction notice.
Most lenders will provide the borrower a couple of days to gather their belongings and vacate the premises.
How to Stop a Foreclosure
The good news for anyone facing foreclosure is that foreclosure can be stopped. However, do note that the success of the strategies below depends on your stage in the pre-foreclosure process.
Forbearance is a financial agreement where a lender affords a borrower reduced payment portions or even a complex postponement of the loan repayments for a specific period.
This foreclosure-halting method gained popularity in America during the Covid-19 pandemic. Homeowners saw their mortgage payments paused for up to six months.
The grounds for forbearance are often associated with financial emergencies like losing a job, experiencing a salary cut, or health problems.
Bankruptcy is the second method property owners can employ to stop foreclosure. Chapter 13 bankruptcy will see the lender restructuring your loan into more affordable payment plans.
However, chapter 7 is the bankruptcy to file for property owners who are ready to part with their homes.
Through Chapter 7 bankruptcy, a court order will immediately stop creditors from demanding repayments. But it also forces the liquidation of all your nonexempt assets to repay any outstanding debt.
Hard Money Loan
Our third piece of advice on how to stop foreclosure is by refinancing your home.
Refinancing is the process of taking out a new loan to pay off an existing one. Once your application is approved, the new lender will pay off your current mortgage.
They will then open a new loan account for you as you continue to pay the new loan.
Hard money loans are the best way to refinance your home. These private foreclosure bailout lenders can help you repay your mortgage regardless of a bad credit score.
When Is It Too Late to Stop Foreclosure?
When is it too late to stop foreclosure? Our answer is that it is too late when the house has been sold. For as long as your lender is still willing to negotiate, then you haven’t run out of options.
With bankruptcy and hard money loans, saving your home from foreclosure is a possibility.
To learn more about finances, check out our article on how to maintain a good credit score.