Going through a foreclosure is devastating for any homeowner. While you may have gone into the purchase of your home with a clear set of financial goals, it is easy for life to get in the way. Whether it was being laid off from a job, medical bills piling up, or anything else that could have strained your finances, foreclosure can happen to anyone and everyone.
This is a difficult process to understand, not to mention, how overwhelming this all might be for you. To help you stay as informed as possible here’s a beginner’s guide to foreclosures and finances.
When Does the Foreclosure Process Start?
While each lender has their own rules, typically homeowners enter foreclosure if they haven’t paid their mortgage for three to six months. Lenders usually have a grace period for late payments, but foreclosure is when there is a constant lack of payment for months at a time.
What Happens to the Property?
There are two ways a lender can begin the foreclosure process, through a judicial sale or a power of sale.
- The lender files a claim with a court.
- The lender will send a letter demanding payment to the homeowner, usually with a 30-day deadline.
- If the homeowner does not pay, the lender will bring the home to auction.
- Once the home is sold, the homeowner will be served an eviction notice and must leave the home immediately.
Power of sale
- The lender sends a letter demanding payment to the homeowner.
- A deed of trust is drawn up, moving responsibility to a trustee.
- The trustee holds an auction on the home.
- Once sold, the homeowner will be served an eviction notice.
Foreclosures and Your Finances
There are different options available for your finances if you are facing foreclosure. Depending on your situation, you have the option to:
- File a deed in Lieu: when the mortgage holder transfers the deed of the home over to the lender to avoid foreclosure proceedings. These are also known as a short sale.
- Claim a strategic Default: when the mortgage holder walks away from the contract altogether. In some cases, your lawyer may believe it is not in your best interest to continue paying the mortgage, so you can file for a strategic default. However, these can be complicated and require an experienced attorney.
- File for Bankruptcy: you can file either Chapter 7 or Chapter 13 bankruptcy.
- Chapter 7 Bankruptcy allows for mortgage holders to file what is called an automatic stay, which requires creditors and debt collectors to cease their collections. This will give the homeowner about three to four months to come up with their late payments and avoid foreclosure.
- Chapter 13 Bankruptcy allows the homeowner to stay in their home and pay off the overdue payments on top of the regular mortgage payments over a three to five year period. If all of the payments have been paid during this timeframe, the homeowner will avoid foreclosure and stay in their home.
Keeping track of your finances while going through a foreclosure can be a headache, discussing your situation with a foreclosure lawyer. Let a professional help you navigate your foreclosure.