It’s a common misconception that foreclosure starts when you miss a mortgage payment. The reality is that most states require lenders to get through the pre-foreclosure process before they can officially begin foreclosure proceedings.
If you are in the midst of pre-foreclosure, you still have a few options to stop these proceedings and avoid foreclosure, but you should act quickly. Let’s take a closer look.
Pre-foreclosure is the process leading up to foreclosure. Foreclosure is when your mortgage lender takes possession of your home and evicts you from the property. It’s still important for you to take steps to fix the pre-foreclosure quickly to save the property.
The pre-foreclosure process often includes the following:
The pre-foreclosure process can last anywhere from a few weeks to several months, depending on your state of residence and the policies of your mortgage lender. If you’re in the pre-foreclosure process, your lender hasn’t received the money you owe for your monthly mortgage payments.
If the pre-foreclosure process is completed, your lender will submit eviction request paperwork to the court and the county sheriff’s office, officially kicking off the foreclosure process. Depending on your state's rules, foreclosure can also take several weeks or months from start to finish.
While it’s possible to get out of foreclosure after it starts, it can be extremely difficult. Settling your debts and becoming current on your mortgage during pre-foreclosure is always a good idea.
There are still a few options if you’re in the pre-foreclosure process. Let’s take a look at a few of the most effective strategies.
First and foremost, you should always contact your lender immediately, even though it can feel intimidating. Lenders often lose money during foreclosures, so they likely hope to avoid the process almost as much as you.
It’s possible that your lender will be interested in working with you to figure out a way for you to keep making mortgage payments so they don’t have to foreclose your property and try to sell it.
If you decide to contact your lender during pre-foreclosure, ask them how much you owe and whether or not you can become current on your mortgage. Most of the time, your lender will say yes if you immediately pay the balance of what you owe.
If you don’t have enough money to get current or know you won’t be able to make the regular mortgage payments with its current terms, ask your lender if it’s possible to refinance your mortgage.
A mortgage refinance is the process of taking out a new mortgage to pay off the existing one. The result is typically a longer loan term that leads to lower monthly payments. In many cases, it can also result in a lower interest rate.
Refinancing is often beneficial for both you and your lender. While a refinanced loan could mean that your lender makes less money from your mortgage than they originally predicted, it's still often better for them than foreclosure. Your chances of securing a refinanced loan might be better than you would think.
The tricky thing is that refinancing typically requires a strong credit score and a solid relationship with your lender. If you’re in the pre-foreclosure process, your lender will likely have doubts about granting you a new mortgage and, most likely, your credit score has decreased below the minimum score needed. If that’s the case, they might not agree to a refinance and continue forward with foreclosure.
Should refinancing not be viable, the next option is to see if someone will purchase your home through a short sale. With a short sale, you would sell your property for less than the remaining balance on the mortgage. Your lender will have to agree on the amount to satisfy the balance owed.
Finding a buyer with that kind of capital ready can be challenging, but you can sometimes secure a short sale from a real estate developer or company. It is important to remember that your lender will need to accept the short sale conditions for the deal to go through. If the amount offered by the buyer isn’t enough, the lender can say no and continue the foreclosure proceedings.
In that case, ask your lender if they’re willing to accept a deed in lieu of foreclosure. A deed in lieu of foreclosure means you’ll give your lender total ownership of your property via the deed. In exchange, the lender absorbs you of any mortgage debt obligations, and you’ll avoid foreclosure entirely.
It’s important to note that a deed in lieu of foreclosure will appear on your credit report, and you’ll lose possession of your home. You would have to leave the home soon after the deed is accepted. While that’s not the most desirable outcome, it appears much better than a foreclosure on your report because it reports for four years instead of seven.
An alternative option that can keep you in your home as an owner and get the cash you need to improve your finances and build your credit is a co-investment from Balance.
When you partner with Balance, we’ll pay off your mortgage and make an equity investment in your home. After you pay off your mortgage, you’ll pay a monthly fee to us that covers the home and your share of its expenses. It’s a strategy that many other homeowners have utilized to help get out of foreclosure, consolidate debt, repair their property, fix their credit and financial profile.
In exchange, you’ll remain on title and retain the right to purchase the equity back from us at any point since there is no minimum term requirement. Not only will Balance Homes pay off your mortgage, but will also allow you to access your equity for additional cash to pay off debts, medical bills, or anything else that caused you to fall behind on your original mortgage or to help save you money and strengthen your finances.
In the meantime, you’ll get out of the pre-foreclosure process and avoid foreclosure. We’ll be completely paying off your mortgage, so you won’t have any foreclosures or deeds in lieu of foreclosure appearing on your credit report.
You’ll be given the financial flexibility to rebuild your credit, pay off your debts, and achieve more substantial financial stability. In time, you could buy us out and become the sole owner of your property.
As you can see, Balance offers one of the best ways to get out of pre-foreclosure and stay in your home. When Balance becomes a co-owner of your home, we’ll give you the financial space you need to save money, rebuild your credit, and get your finances back on track, creating a path to exit the co-ownership and going back to owning the home without Balance..
Contact us today to learn more.
Sources:
Pre-foreclosure: How it Works in Real Estate, FAQs | Investopedia
Refinance: What It Is, How It Works, Types, and Example | Investopedia
What Is a Short Sale? The Long and Short Of It | Realtor.com
What is a deed-in-lieu of foreclosure? | Consumer Financial Protection Bureau
