Many homeowners face a severe crisis, such as divorce, severe health issues, or family death, and are unable to make their home mortgage payments. Unfortunately, regardless of the reason, if you do not meet your contractual loan obligations the lender has the legal right to foreclose on your home.
One option to stave-off foreclosure is to request loan modification from the lender. If approved, the loan modification modifies the terms of the original mortgage agreement, allowing you time to improve your financial position and save your house.
Although loan modification options are at the discretion of the lender or the specific program in which you might qualify, several options to investigate include:
Not every homeowner will qualify for loan modification. Talk to your lender and discuss your options. Do not wait until the bank has notified you that they are foreclosing on your home.
If no option to save your house is available you can consider a suject of the loan to a family, although this is a serious financial decision with severe financial consequences.
If you are already overwhelmed at the thought of doing all this alone and don’t know how to proceed, our home owner’s advocate can guide you and help you in negotiating with your lender.
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Home foreclosure allows a lender to repossess or take ownership of a home if the borrower defaults on their loan by failing to make loan payments. States may allow either a judicial or non-judicial foreclosure.
Depending on the state and the foreclosure process allowed, the mortgage company or lender will notify the borrower of their intent to foreclose on the home or property through a public default notice, called a Notice of Default, or through a pending lawsuit, called a Lis Pendens.
States which require judicial foreclosures will require the lender to go to court to initiate the foreclosure process.
If live in a judicial foreclosure state you may have a bit more time to prepare your strategy to avoid foreclosure. If you fail to respond, however, the foreclosure will proceed, the court will issue a default judgment for the lender, and the lender will auction your home.
Other states allow lenders to foreclose through a non-judicial foreclosure, which means they do not have to go to court. States which use this process will have specific laws related to how a foreclosure must proceed, how many days notification the lender must give you, how the property can be sold, and whether or not you can reinstate the loan prior to the auction or for a short time period following the auction.
Regardless of whether or not you live in a judicial or non-judicial state, if you receive notification of a pending foreclosure, you should immediately contact the lender and determine what actions they may allow you to take to avoid home foreclosure.
Options allowed may be determined by the lender. Common foreclosure prevention methods include:
There are pros and cons for each foreclosure prevention option. Make sure you understand the implications before you take action. Several of the actions will significantly lower your credit score and will be reported to the credit agencies.
Some of the options, however, could be better than a foreclosure, which can also remain on your credit report for seven years, force a repossession of the house, and make it difficult to get a loan or purchase property in the future.
For most Americans their home is their largest investment asset. Foreclosure allows the lender to repossess this asset and sell it. If the sale price at auction is less than the original loan amount this can create a deficiency. In some states and under certain conditions, a lender may be able to sue the homeowner for the deficiency and receive a deficiency judgment.
A deficiency judgment may allow the lender to pursue repayment through various collection efforts such as a lien on property, bank account levies, wage garnishments, and property repossessions. With this in mind, your main goal as a homeowner is to avoid foreclosure.
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