Foreclosure - What is It?
Foreclosure is when the bank or mortgage lender takes control of a property because the homeowner has not paid their mortgage. If you’re facing foreclosure, don’t ignore your lender because lenders are often willing to work with borrowers to find a solution, like changing the monthly payments to make them more affordable.
In many parts of the U.S., your house is worth as much or more than you owe the bank. It makes sense to talk to an experienced real estate agent to see what your house is worth. Even if it’s not worth quite as much as you owe, you can often do what’s called a Short Sale, where you sell the house and pay the lender whatever you get and they forgive the rest. Many lenders prefer this option because foreclosure can be expensive for them.
Foreclosure can happen through a judge and the courts (called a judicial process), where the lender files a lawsuit and the house may be sold at auction, or through a non-judicial process, where the lender follows the steps outlined in the mortgage agreement to sell the home without going to a judge or taking the owner to court.
The foreclosure process starts when the homeowner misses a mortgage payment. If the homeowner miss es more payments, they are considered in default. Foreclosure is different in every state. In Texas, for example, it takes just 27 days before the banks can start the foreclosure process and you could lose your house in less than three months. In New York. it’s 445 days.
If the foreclosure process starts, there may be opportunities to stop it. The homeowner can still save the home by paying what is owed or working out a repayment agreement with the lender. If the home is sold, the homeowner will need to move out within a certain timeframe determined by state laws. Some states allow what they call a redemption period where the original owner can come forward, pay the loan amount plus any fees, and get the home back.
If the bank gets a lot of money for the house, the extra money goes to the original owner, after paying off the loan and foreclosure costs. If the home sells for less than what is owed, the lender may try to collect the difference through what’s called a deficiency judgment, but some states have laws that restrict or prevent this. This may seem like an easier option than selling the house yourself but the many foreclosure fees will come out of the proceeds of the sale and the process will cost a lot more than if you sell it yourself before you start missing payments.
Even though the bank is going to take the house, you still have to pay your property taxes. If the taxes are not paid, the town or city can take the property instead of the bank. Either way, you’re losing your house but this way can be worse for you.
To stop the foreclosure process, it’s important to communicate with the lender as early as possible. They may ask for proof that you’re having issues and can’t pay the loan and offer to change the payments for a while until you get back on your feet. Please watch out for scammers and only seek help from legitimate sources like government agencies and approved housing counseling agencies.
If you are struggling to pay your home loan, don’t wait for the bank to start foreclosure. Contact me or another real estate agent or real estate attorney who you trust and get their advice.
This article was written by Chris McCarron and ChatGPT but this article was the original inspiration.
Photo by Antoni Shkraba: https://www.pexels.com/photo/man-in-gray-long-sleeve-shirt-sitting-on-brown-couch-5217855/