Is the bank threatening to take away your home? Foreclosure is a homeowner’s worst nightmare. The thought of being suddenly uprooted from your home within weeks or even days would terrify any sensible person. When you first purchase a home, you always have the best intentions of living happily ever after, secure, and with your family. You are sure payments will be made on time, and you may even have visions of setting aside money for renovations.
But despite your best efforts, sometimes it can become just too difficult to keep mortgage payments up and the loss of the home becomes a heartbreaking reality. But you’re not alone. RealtyTrac cites that there are currently around 435,507 homes in the United States (as of March 2019) that are in various stages of foreclosure. If you are one of those, or just want to be prepared, keep reading for more information and resources that will help you get back on your feet.
5 Most Common Reasons for Foreclosure
There are many reasons why a person loses his or her home to a bank. It could be something unforeseen or simply because they can no longer pay their mortgages. Here are some of the reasons why a bank takes hold of your property:
- Loss of an income or job. Perhaps the most common reason is when you lose your job and main source of income. Once you run out of work, your funds will dwindle as you struggle to keep up with other bills. Losing one’s job can catch up quickly, especially if you haven’t had the opportunity to save for an emergency such as this. It’s no wonder this is a common factor in families losing their homes.
- Having mortgage rate increase. Some mortgages can be adjustable and sometimes, it increases more than it decreases. If you cannot pay the increased mortgage payments then most likely, the bank will take hold of your property.
- Bought a house you couldn’t realistically afford. Perhaps you saw the house and fell in love with it right away. You knew it was out of your price range… but it was your dream home! And you couldn’t pass it up… but now you’re feeling the pain of missed payments. If this is the scenario and you can no longer pay for an expensive house, then yes, you can lose it to the bank.
- Losing tenants. If you are a landlord renting your home out to tenants, then this can be a reason you may lose your home. If your previous renters left and you cannot find someone to take over the payments quickly, you could end up missing enough payments for the bank to foreclose.
- Unexpected emergency. This could be the loss of a loved one, a major illness, a natural disaster, etc. These things can be extremely costly, and also put you under a lot of stress. And if it’s so severe that you are falling behind on your mortgage, this could spell trouble for you and your family.
Ways to Stop the Bank from Taking Your Home
Communicate With Your Lender
It’s always a good idea to stay ahead of the game when it comes to anything related to finances, but especially when dealing with large assets such as your home. Not to mention, your home is where you live, it provides you safety and comfort on a daily basis, and you would likely be in big trouble if you lost it. So take precautions!
- Find your lender. Track down your lender’s contact information. You will most likely be able to find it on your monthly mortgage billing statement or by simply Googling the name of the lender.
- Be prepared. Make sure when you call, you have the following information written down and available in case it is asked for:
- Your loan account number
- A short summary of your situation
- Recent income documents (these can include: pay stubs; Benefit Statements (from Social Security, Unemployment, Retirement, Public Assistance; tax returns, etc)
- List of household expenses
- What to expect. You will likely be in consistent contact with your lender from that point forward, until you are able to get ahead of your payments again. Usually, the lender will mail you a “loan workout” package containing information, forms, and instructions. A loan workout is a comprehensive plan between you and your lender to restructure your debt in an effort to avoid foreclosure. This will likely require some negotiating with the lender to re-draft an agreement with new terms. The lender will look into why the homeowner is unable to pay the loan and determine whether or not the modified terms will allow the loan to be repaid. According to FindLaw, the lender will look at factors including:
- The nature of the hardship that led to the homeowner’s inability to pay
- The total amount that is still owed on the loan
- How much equity has been earned on the property
- Whether the homeowner has future financial prospects
- Whether foreclosure or a loan workout would be more optimal for the lender
In addition, the article points out some ways in which the loan can be modified:
- Missed payments can be added to the existing loan balance
- The lender may agree to change the interest rate, even making an adjustable rate into a fixed rate
- The total number of years allotted to repay the loan may be extended
Depending on the circumstances of your personal situation, your lender may offer one of the following:
- Reinstatement. When the lender accepts the total amount owed to them in a lump sum by a certain date. (This option is often combined with a Forbearance.)
- Forbearance. This is a reduction or suspension of payments for a short period of time. Following this, another option must be agreed upon in order to bring your loan current. This is often combined with a Reinstatement when there is an acknowledgment that the person responsible for repaying the loan will be able to secure enough money to bring the account current in the future.
- Repayment Plan. This would typically be an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments added to each month until you are caught up.
Make sure when you receive the loan workout package that you complete the forms and return them your lender quickly. The sooner you take action, the better.
- Do not ignore mail or phone calls from your lender. If you do not stay on top of your payments, your lender will attempt to contact you by mail or phone shortly after you cease to pay. It is crucial that you are responsive to the loan office, as they are trying to reach out in order to help you, not to demand the money. But if the lender does not hear from you, they will be required to begin the foreclosure process by taking legal action, which will lead to an increased cost to you. It may also make it more difficult to re-negotiate the loan contract as you have already displayed signs of non-cooperation.
Speaking directly with your lender about missed payments can be intimidating. If for whatever reason, you feel uncomfortable speaking with your lender, there are other options. One of these would be to get credit counseling from an HUD-approved counseling agency in your state. When you contact the agency, they will arrange an appointment with a counselor who will help you assess your financial system and provide you with options for moving forward with negotiating with your lender. These counselors are highly trained and will know which route will be best for you and your family, given your personal circumstances. The counselor will also call the lender with you or on your behalf to discuss a work-out plan. When you call, be prepared with current information regarding your income and expenses. The agency may also charge a fee, so confirm this before signing any documents.
Long-term inability to make payments
The solutions listed above are mainly applicable in situations of emergency or unexpected events in which a person may struggle to make payments in the short term. However, if you are facing long-term difficulties that will permanently affect your ability to bring your account current, things will look a bit different. If you can continue making payments on your loan but do not have enough to catch up on payment, your lender may be willing to work with you to change some terms of your original loan to make payments more affordable for you. They may do this by:
- Adding the missed payments to the existing loan balance
- Changing the interest rate, including changing an adjustable rate to a fixed rate
- Extending the time frame of when you have to repay
- Claim advance: In the event that your mortgage is insured, it’s possible that you can qualify for an interest-free loan to help bring your account current.
After the Bank Claims Your House, What’s Next?
After the bank takes your house, this house will be known as a Real Estate Owned property or REO. This means it could go to auction, which is favorable to many real estate investors and people looking for bargain houses. Banks usually sell these homes for less than the actual value because they want to get rid of the property as soon as possible. However, they will not put your house on for sale right away. Depending on your bank, there might be a chance of taking it back but if you are in financial debts then you might have a slim chance.
Bottom line is, if you don’t want to have a foreclosed house, make sure to meet all payments. And the second you realize you are going to be late on a payment, notify your lender. Remember, they don’t want you to miss payments any more than you don’t, so they’re on your side.
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