What Is A Foreclosure?
If you’re reading this, odds are you already know what a foreclosure is and how it may affect your life. Nevertheless, a brief review might help explain the issue in a little more detail. Put simply, a foreclosure is the legal process by which a bank or other lender may take possession of a property in which it has an interest.
Generally, the bank or other lender will have an interest in the property by virtue of a mortgage.
Houses are expensive, and most Americans can’t afford to pay for one in cash–so they approach a lender who, after analyzing the applicant’s finances, approves the requested loan amount for the purpose of buying the property.
But how will the bank protect its ability to collect the full amount owed? By executing a mortgage on the underlying property.
A mortgage is an agreement–a contract–between the bank and the buyer. It requires the buyer to “stake” the purchased property as collateral against a possible loan default, and a person is considered in default when they fail to make payments towards the loan balance, that is, when they break their side of the contract.
To put it plainly, if you don’t have the money to buy a house the bank may buy it for you so long as you agree to pay them back (with interest, of course). If you don’t pay the loan back, the bank will take the house in a process known as foreclosure.
What Should I Do If My Bank Plans On Foreclosing?
If your bank has notified you of its intent to foreclose on your home or business property, consider doing the following as quickly as possible:
One: Read Everything
Mortgages are contracts, as such their creation often requires significant documentation. If you’re about to be foreclosed upon, it’s absolutely critical that you review the terms of all agreements between yourself and your lender. There may be provisions in your mortgage document that can be used to your advantage, or provisions that might at least slow the foreclosure process down or otherwise buy you time. Understanding your contract is critical–remember, knowledge is power.
Two: Call Your Lender
Many large lenders have special programs you can enter into that can halt your foreclosure. Lenders may offer to refinance your property, getting you a new monthly rate with your missed payments added to the principal. A lender might also offer a repayment plan that effectively does the same thing without creating a whole new debt obligation.
Some lenders also offer forbearance periods, or time periods, in which a lender will forgo their debt collection in light of some situation (i.e. a death in the family) for a certain period with the understanding that the missed payments will be made up later on.
And finally, some lenders may offer loan modification as a simple way to change your monthly rate by the mutual agreement of the lender and the borrower. Banks will sometimes do this to help customers manage their finances in times of need.
Three: Consider A Short Sale
The easiest way to end a mortgage obligation is to pay off the loan balance which created it. Assuming you don’t have a stack of cash lying around with which to do this, the best way to get the cash quickly is by selling the mortgaged asset itself. If you can sell the house at market value and pay off the loan, all well and good. If you can’t, you may need a “short-sale,” or a sale for below market value that has to be approved and managed by the lender.
And while this option may seem counterintuitive–it does end with you losing your property, after all–a sale or short-sale can help the borrower avoid some of the worst outcomes of a foreclosure (i.e., losing the property, having the bank sell it for far below market value, while you remain on the hook for some amount owed despite having essentially lost everything).
Four: Consider Bankruptcy
If you’re in a truly desperate situation, filing for bankruptcy can relieve some of the pressure creditors may be applying to you, though this relief will come at a steep cost. Filing for bankruptcy will shield you, legally, from the worst outcomes of a financial disaster, but it will also destroy your credit, often for many years. Filing for bankruptcy may be the best solution for you, but do not undertake to do so lightly.
Five: Hire An Experienced Attorney
Each of the actions described above require significant interaction with the law. Where issues of property are concerned, you don’t want these interactions to be negative ones. The best way to avoid losing property unnecessarily, or being forced to pay money unnecessarily, is to hire an attorney to represent your interests in any conversations had between you and the lender and between you and a court.
Further, a talented real estate and property law firm can help you negotiate those better rates referenced in point one, and they can help you determine if a filing of bankruptcy is necessary and how to do that as referenced in point four.
In short, all of these options are made more effective by the addition of legal counsel.
Consider contacting an experienced property, real estate, and planning attorney like those at the Principal Firm, (407) 322-3003, today!
