If you have fallen behind on your mortgage payments and your lender has filed a Notice of Default (NOD), you might think you don’t have any options other than losing your home to foreclosure.
But even at this stage, there are things you can do to save your home.
You have spent a significant part of your life, turning a house into a home for yourself and your family. You probably have beautiful memories there. Losing your home because of a financial crisis is something you want to avoid, if possible.
The best possible scenario would be a foreclosure workout. Until the time your home is auctioned, your lender would prefer you to get back on track with your payments than take your home away.
Talk to your lender. Find out your options for avoiding foreclosure. Honest communication and a willingness to do what is necessary to stop the foreclosure process will help. Your lender can tell you your options.
One option is to ask about reinstatement.
Reinstatement is when the lender lets you pay all the money you owe on missed payments, probably including interest and late fees.
There are other ways your lender can work with you, as well. It would help if you showed them your determination to work this out and convince them that your financial woes are only temporary. Ultimately, you both want the same thing.
Most loans are no longer assumable. However, you might be able to persuade your lender to modify your loan and allow another buyer to assume the loan when facing foreclosure. Of course, your lender will want to assess the buyer’s qualifications, but it could be an option that works out for everyone involved.
You could negotiate a down payment from the buyer that you can use to pay off your past due amount on missed mortgage payments.
In a lease-option situation, the new buyer becomes your tenant, and you continue to own the home. Sometimes the new buyer will make a lump payment upfront, which you can apply to bring your mortgage current. After that, the buyer will make monthly payments to you, which you will apply to your mortgage.
If you want to use the lease-option to stop foreclosure, you must negotiate payments that cover all or most of your mortgage, property tax and homeowner’s insurance.
A less appealing option is bankruptcy. Bankruptcy puts a stop to foreclosure immediately. Once you file a bankruptcy petition, federal law prohibits debt collectors from continuing collection activities. Foreclosure is considered a collection activity. When you file for bankruptcy, the foreclosure process will be frozen.
However, the bankruptcy trustee’s role is to be a mediator between you and your creditors. Bankruptcy buys you more time to recover financially or replace your lost job; it doesn’t let you off the hook for your debts.
The law requires that your creditors, including your mortgage company, work with you to come up with a reasonable repayment plan to get you back on track. You will need to consult with a bankruptcy attorney about whether filing for bankruptcy is the best decision.
A short sale doesn’t allow you to keep your home, but it does let you stop the foreclosure process.
If you don’t think you will be able to repay your mortgage, a short sale might be the best option. After your lender files a NOD and before they schedule it for auction, if you get an offer from a buyer, the lender must consider the offer.
If the lender forecloses on your home, they are going to try to resell it. If you have a reasonable short sale offer, they might take it as it would save time and trouble. If your home is on the market, continue to seek a buyer for it, even after the lender initiates the foreclosure process.
Deed in Lieu
With a Deed in Lieu, the homeowner signs the deed back over to the bank, voluntarily. While this stops the foreclosure process, it has the same impact on your credit as a foreclosure does.
A deed in lieu is not granted often. Still, it can be considered by the lender if foreclosure is unavoidable. The homeowner has had the home for sale for months and has been unable to sell it, there are no liens on the house that the lender would have to pay off, the seller can prove their financial hardship, and the homeowner initiated the process. Even then, the lender may not agree to a deed in lieu.
Talk to a Law Zebra Attorney
If you are facing foreclosure and are considering any of the above options, you should strongly consider consulting with an attorney immediately.