Things to Know to Avoid a Foreclosure

When you’re under threat of a foreclosure, your first instinct is usually to deny the fact that you’re in the danger of losing your home. This actually only makes the situation worse. The first thing you need to do is to face reality head on and think of your options.

Pre-Notice of Default

As much as possible, you need to take matters into your hands before your lender thinks about sending out a Notice of Default. Before any Notice if Default is passed, you actually have several options at your disposal.

The first would be to find ways to pay your bills. A foreclosure is not possible unless your lender has reasons to take legal action against you. If you can come up with ways to make extra income and meet your obligations, you’ll be free from any threats of foreclosure.

If it’s humanly impossible for you to acquire money, you can try and lay out the cards with your lender. When borrowers make strong cases about their financial troubles, lenders are usually willing to forgive a portion of the total debt to make payment possible.

If no such bonus comes your way, you try to negotiate. Ask your lender about possibilities of refinancing. Most lenders allow borrowers to pay for their debts over a longer term. Of course, you should expect higher interest rates when you choose this option.

Post-Notice of Default

Once the Notice of Default has been files, you have fewer options, but it’s not impossible for you to dodge the dangers of foreclosure.

Instead of letting the lender auction off your home in the future, you can choose to sell your home yourself. Hopefully, you’ll be able to make enough profit, pay for your debt, and get off the hook in no time.

You can also consider the possibilities of a short sale credit. A short sale can give you a band credit score, but it generally doesn’t look as bad foreclosure.

To save your credit history, you can also choose to write a deed-in-lieu of foreclosure. In this set up, you’re practically giving your property to the lender in exchange of “forgiveness” for the debt. You walk away homeless but in one piece with this set up.

Shortcomings of Buying Foreclosed Homes

As in all deals that seem too good to be true, buying homes on foreclosure also have its downside. It’s true that when you bid on an auctioned off home, there’s a great possibility that you will be getting a real bargain. However, based on studies, foreclosed homes come with certain “catches” as well.

The house comes with tenants

Not all homes sold on foreclosure auctions are vacant. Most of the time, the new owner needs to carry on the burden of evicting the former home owners.

This can cause great emotional turmoil on your part. After all, it’s not east to face the fact that you are actually taking advantage of someone else’s misfortune when you buy foreclosed properties.

Although you’ve technically paid good money for the property, you can’t deny the emotional baggage that comes with it. Nothing realizes this guilt more than seeing the former owners move out of their home.

The house has been vandalized

Sometimes, mortgagers fail to include important details about the property. For example, there’s a grave possibility that the property you’re bidding on has been abandoned for many years. This means that you will eventually be spending on repairs and whatnot.

At worst, the house could have been left unsecured and vandalized. You’ll never actually know unless you’ve visited the site of the property. In any case, when you’re bidding in a foreclosure auction, the best you can hope for is a transparent deal.

The Three Stages of Foreclosure

Foreclosure doesn’t happen in a lightning strike. Like any legal process, it has slow, meticulous steps. If you’re worried about suffering the consequences of a foreclosure, understanding how it goes might help you cope better with the situation.

During the Pre-foreclosure stage

At this time, both lender and borrower can do what they can to avoid denting the borrower’s credit history. This is usually the time before the Notice of Default is passed on to court.

The borrower and the lender can negotiate the terms, and the lender can either forgive a portion of the borrower’s debt, or give the borrower a longer term to pay off his obligations.

In the middle of the foreclosure stage

Once the Notice of Default has been passed, the property is legally transferable to the lender’s ownership once s/he decided to take a legal action against the borrower.

During this stage, the borrower can either write a deed-in-lieu of foreclosure so that the mortgage can be forgiven in exchange for the pledged property.

The borrower can also negotiate with the lender so the borrower can sell his/her property him/herself, acquire profits and enough cash to pay for the debt, and walk away without a scratch.

Post-foreclosure

Once the foreclosure claims of the lender have been proven valid in court, the property will be auctioned off. If the property attracts bidders, the deal is closed. If it doesn’t attract bidders, the property remains in the ownership of the lender. S/he can then choose to dispose of it through ordinary real estate means.