Foreclosure is the process of losing your home because you cannot keep up your mortgage payments.
As long as you don’t sit there in complete denial of what’s happening, you have enough time to check out all your options. One of the more popular of these is selling the property fast – before the foreclosure can be completed.
However, just like the intended sale of the property, you need to move fast, too.
For many Americans, particularly first-time buyers, buying a home could be considered a risk, especially if they have mortgaged themselves.
Factor in that little thing called “life” – meaning no one can predict what the future may hold – and you can see there might be very little financial leeway or room for maneuver for many new homeowners should something unforeseen happen.
And let’s face it… Who could have foreseen the coronavirus pandemic? Or its devastating knock-on effects, such as the U.S. economy coming to a near-standstill, millions of workers losing their jobs or being furloughed, and the premature foreclosure of many businesses across the nation?
Unthinkable, surely? But it still happened anyway.
The “Foreclosure Moratorium” (known formally as the CARES Act) – introduced by the federal government as their response to these knock-on effects of the pandemic, offering both practical and financial assistance to homeowners – has now come to an end.
The harsh reality, then, for many homeowners are their revised mortgage payments – payments that they may not be able to continue making.
Many housing market experts initially predicted an unstoppable “foreclosure tsunami” – however, that has not happened.
Although certainly not on the scale predicted, we will still soon see more and more banks and lenders sending out legal notices of foreclosure to homeowners, and, sadly, many of these people will go on to lose their homes.
“In this current housing market, almost every homeowner has equity. So, don’t be in denial and go into foreclosure. That just gives your equity back to the bank.
If you’re 60 days behind and you know you can’t catch up, call a real estate agent, get the house on the market, and get as much money out of it as you can.”
– Bethany Mendoza, respected California real estate agent
Because the consequences of the foreclosure process can be so serious – including the loss of a home and a ruined credit history that is certain to follow you wherever you go – many homeowners will look for almost any way to avoid foreclosure.
As we have already mentioned, one clear and popular solution is to sell your home before the foreclosure process is either initiated or completed.
However, in the interests of presenting a more balanced view throughout this article, we will also look at the alternatives to selling if your home should go into foreclosure.
What is Foreclosure?
Foreclosure is usually defined as “the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.”
Put simply, however; it’s possibly a homeowner’s worst nightmare.
Fortunately, foreclosure is a legal process rather than a simple action – it certainly doesn’t happen overnight. This means you have time to look at your options and choose the best course of action that works for you – and you alone.
To give you an idea of how long the foreclosure process can take. Currently, the average foreclosure in the U.S. takes around 924 days. However, it is all dependent on which specific U.S. state you live in.
In the case of a home being foreclosed upon, usually, the lender will take measures to repossess the property. Once that has been done, the lender will market the property in an attempt to sell the house and recover the amount owed on the outstanding loan.
This can legally happen because mortgage loans are secured by the real estate, meaning that the home your mortgage is for is also used as its collateral.
Importantly, if you become unable to make your mortgage payments and subsequently default on your mortgage loan, you are at risk of foreclosure.
You need to realize that the foreclosure on your house can lead directly to you being evicted from your home. Without a doubt, it will certainly ruin your credit history.
Mortgage Loans: What is Pre-Foreclosure?
You may have heard the expression “pre-foreclosure” and made presumptions about what the term means. To provide you with as much detail as possible about all the legal jargon you may hear during this process, here is an accurate explanation of pre-foreclosure.
Pre-foreclosure, the first step in the foreclosure process (as you can imagine), occurs when a homeowner’s mortgage is delinquent or in default – but before the lender has taken any significant legal action to recoup the overdue balance, known as mortgage arrears.
A mortgage loan default normally occurs when the homeowner has a specified number of late mortgage payments or is in arrears.
If the homeowner continues to miss making monthly mortgage payments, then a lender will send them a notice of default – a public notice that the bank or mortgage company files with a court. This notice legally informs the borrower that their mortgage is in default.
During pre-foreclosure, homeowners still have the opportunity to work with their mortgage lenders to stop the foreclosure process from continuing to its conclusion. Another process often referred to as loss mitigation.
Lastly, be warned – the foreclosure process in each U.S. state can vary from state to state – right across the country.
Foreclosure in the U.S.: The Legal Process
The process of foreclosure can be instigated by the terms of the mortgage or “deed of trust” contract, which grants the lender the legal right to use a property as collateral.
Subsequently, foreclosure can begin if the borrower fails to meet the agreed and specified terms of the mortgage document, eg. they become unable to make the required mortgage repayments.
Although the legal foreclosure process varies from state to state [and this is discussed later in this article], it normally begins when a borrower defaults or misses at least one mortgage repayment.
In response to this, the lender will send a “missed payment notice” – stating that the payment has yet to be received.
If two payments are then missed, the lender responds by sending a “demand letter.”
However, at this point, most lenders will still be happy to allow the borrower to make up all of the missed payments.
However, after 90 days of missed payments (meaning a third payment has not been made), the lender responds by sending a “notice of default” to the borrower.
This is an important date in the calendar for the homeowner who has defaulted because now their loan is officially handed over to the lender’s foreclosure department.
The homeowner now enters a 30-day period known as the “reinstatement period,” where the lender grants a further 30 days for the homeowner to make all the previously missed payments, bringing the loan account up-to-date.
If these payments are made in full, the loan can then be legally reinstated.
However, if the missed payments are not made during this reinstatement period, the process of foreclosure can legally begin.
Within a month or two, the foreclosure will appear on the borrower’s credit report and will remain there for a further 7 years.
How Do Foreclosure Laws Differ From State to State?
State foreclosure laws (a set of legal procedural steps for the lender to foreclose on a property) can vary from state to state; the significant aspects of a foreclosure that can differ include:
- The Foreclosure Procedure
- Deficiency Judgements
- Redemption, and
1. The Most Commonly Used Foreclosure Procedure By State
In the U.S., a foreclosure can be either:
- Judicial: the foreclosing party (the lender) files a lawsuit, and the case goes through the court system, or
- Nonjudicial: the foreclosing party (the lender) follows a set of state-specific, out-of-court procedural steps to legally foreclose.
In around half of all U.S. states, foreclosures follow the judicial procedure. In other states, foreclosure can be either judicial or nonjudicial. Therefore, it is always advisable to find out what procedure your state follows – either judicial or nonjudicial.
You can learn which foreclosure procedure is applicable in the U.S. state that your property is located in by checking out this 50-State Chart, provided online by Nolo, a legal assistance website.
2. Deficiency Judgments
When a house is sold at a foreclosure sale for less than the outstanding mortgage debt, the difference between the total debt and the foreclosure sale price is called the “deficiency.” Some states do not allow these judgments under certain conditions.
.Some U.S. states give foreclosed homeowners a “redemption period” to buy back or “redeem” the property after a foreclosure. To redeem the property, depending on state law, you’ll either have to reimburse the purchaser for the amount paid at the sale, plus allowable costs, or repay the total mortgage debt, plus interest and expenses.
As described earlier, a “reinstatement” occurs when the borrower brings the delinquent loan current in one payment by paying the overdue payments, plus fees and expenses incurred due to the default.
How To Sell Your Home Fast Before Foreclosure
There are a couple of ways to sell your home before the foreclosure process is completed. The first is through a “short sale,” which is an option discussed in detail below, and the second is by selling your home in the normal way, either through a traditional real estate transaction or by selling to a property investor.
You can try to sell your home before or after the foreclosure process begins – but not after a foreclosure action is complete. At that point, the property will be owned by someone else, whether it’s the lender or a new homeowner.
If you want to sell your home instead of dealing with foreclosure, it’s far better to fully explore this option as soon as you know for sure that you’re having financial difficulty.
To put it simply, the longer you leave it, the more difficult it can (and will) become. Therefore, a proactive approach will give you time to find a buyer who can offer a good price on your home.
Even so, if you wait until the foreclosure process has formally begun, you can still sell your home – but you’ll have to move quickly – no pun intended.
Fortunately, many banks and other lenders are willing to slow the foreclosure process if it means you can sell your home, and so pay off everything you owe – meaning the lender gets all their money back.
Your Choice: Real Estate Agent or Property Investor?
Prior to the beginning of the foreclosure process – and even during the period of pre-foreclosure (described above) – you can sell your house as normal, by either using a real estate agency to market and sell the property, to invite a property investor to make you an offer, or to sell the house by yourself, known as “For Sale By Owner” (FSBO).
However, whichever route you ultimately choose, you need to ensure the following criteria is met:
- The sale of the property has to be timely – and certainly quicker than the time it takes for the property to go through the entire foreclosure process, and
- The sale of the property has to cover the amount outstanding on the mortgage loan, otherwise you may be subject to a deficiency judgment (also described above).
Given these considerations – speed of sale and value of sale – selling the property through the FSBO route is certainly not reliable enough to guarantee the necessary time scale will be met. Regardless of how much you could earn on the sale, it counts for nothing if the lender swells your property in the meantime.
You are presented with exactly the same issue by going through the real estate agency route. If the property is not sold in time, you risk the house being sold by your lender in a foreclosure auction.
Importantly, you need to be aware that, according to the latest housing market data:
The average time it takes to sell a property through a real estate agency in the U.S. is over 90 days.
Therefore, the only way to absolutely guarantee the sale of the property before the foreclosure goes too far is by using the services of a property investor – obviously depending on how much they are willing to pay when they make their offer.
For an investor, time is certainly not an issue, as they have the necessary cash reserves to make an offer, have it accepted, and then close the transaction quickly.
Additionally, the homeowner is provided with their profit from the sale fully in cash, allowing them to settle immediately with the lender, and then to move on to the next chapter of their lives – importantly, with their credit history intact.
“Short Sale” or “Deed in Lieu of Foreclosure”
For those homeowners who are already subject to the terms of the foreclosure process, there are a couple of options still available, but these depend entirely on your lender; these are
- Short Sale: Only if your lender agrees, you might be able to avoid foreclosure by selling your house for an amount that’s less than your outstanding loan balance, known as a “short sale.”
Deed in Lieu of Foreclosure: Your lender may agree to letting you deed the property over, so that no foreclosure is necessary; this is known as signing a “deed in lieu of foreclosure.”
The Alternatives to Selling Your Home in Foreclosure
Here are your best options to avoiding foreclosure, if you choose not to sell your home. Remember, in order for you to get the end-result you’re looking for, you need to be proactive from the outset.
1. Reinstate Your Loan
If you have enough cash available, you can reinstate your loan by paying all the missed payments, including principal and interest, plus fees and expenses. If the state law doesn’t grant the right to reinstate, speak to your mortgage servicer without delay.
2. Repayment Plan
You may qualify for a repayment plan, where you arrange to make up missed payments over a set period of time, and stay current on your ongoing payments in the meantime.
3. Forbearance Agreement
A “forbearance agreement” is when the lender gives you permission to make reduced mortgage payments for a limited time. Forbearance for 3-6 months is typical.
4. Loan Modification
A loan modification is an agreement between the borrower and the lender to adjust the loan terms, usually to agree to a lower monthly payment.
If agreed, you may be able to refinance the remaining amount of the loan at a better rate, and pay off the existing balance.
6. File for Chapter 7 or Chapter 13 Bankruptcy
If you want to keep your home, a Chapter 13 bankruptcy may help you to do this. However, a Chapter 7 bankruptcy usually will not stop a foreclosure long-term (unless you can get a loan modification approved in the meantime).
Please understand that bankruptcy is a big step for anyone to take, and you should not file for bankruptcy just to delay a foreclosure. Consult a bankruptcy lawyer without delay.
7. Government-Backed Mortgages
Special workout options are available if you qualify for any of these options:
Ask your housing counselor, servicer, or lender for details.
The Benefits Of Selling Your Home Before Foreclosure
There are several clear and distinct benefits to selling your house before your lender has the opportunity to foreclose on the property; these are:
- Your credit report will have no foreclosure recorded: Most foreclosures will stay on a credit report for 7 years and will negatively impact your ability to get a loan or secure housing moving forward.
- If you decide to buy another home, you can do so within 3 years: Prospective home buyers who have previously been the subject of a foreclosure must wait 3 years before they can apply for an FHA loan.
- You will avoid a deficiency judgment: A deficiency balance exists if the proceeds from a foreclosure sale aren’t enough to pay off everything you owe under the mortgage, and some states allow the bank to recover this difference from you through a deficiency judgment.
How Fast Home Buyers Now Can Help You
Fast Home Buyers Now is an established and reputable independent property investment company, who have helped numerous clients to resolve their real-life real estate issues, like being in foreclosure, and so to move on to a better and more financially secure future.
The 3-step process of selling your house to Fast Home Buyers Now is incredibly simple, as you can see below:
When it comes to selling your house, there is no perfect solution. If you do not need to sell your house quickly, perhaps selling your own home using a traditional real estate agent could be the answer.
However, if you find yourself in the potential nightmare of foreclosure, and you do need or want to sell quickly, working with Fast Home Buyers – could very well be the perfect solution you’re looking for.
We’ve helped hundreds of people with their properties – sometimes in even less than a week. Feel free to contact us today, get your fair cash offer, and find a solution to your property problem.