The majority of individuals do not outright pay for the homes that they own. Instead, they typically borrow money from a bank to cover the cost of their home and pay it back in monthly installments over a long period of time.
This type of loan is referred to as a mortgage. Defaulting on a mortgage occurs when the individual who took out the loan can no longer make their payments on time or at all.
Within a month or two of underpayments or nonpayments, the bank may begin the process of foreclosure. This means the homeowner will lose their legal rights to the property and must vacate the premises.
What Are the Legal Steps of a Foreclosure Process?
There are several legal steps to foreclosure processes. First, the bank will issue a notice to the homeowner.
This notice lets the borrower know that they are behind on their payments as well as whether foreclosure proceedings are being considered or when they will begin. This provides the homeowner with time to make good on the terms of their loan before the foreclosure process begins.
Once the property is foreclosed upon, it will be sold. At this point, the property will be the legal property of the bank until another buyer purchases it, usually at an auction.
How Can I Fight a Foreclosure?
Facing a foreclosure can be a complicated and stressful situation. There are, however, several strategies and resources that may be available to help a homeowner fight a foreclosure, which will be discussed below.
Loan Modification
If an individual is facing a foreclosure due to their inability to meet their current mortgage payments, one option to consider is a mortgage modification. This involves negotiating with their lender to alter the terms of the mortgage, which may include things such as:
- Lowering the interest rate;
- Extending the length of the loan; or
- Reducing the principal balance.
A loan modification may be an effective way to make mortgage payments more affordable.
Forbearance
If an individual’s financial difficulties are temporary, a forbearance by special request may be an option. With a forbearance, an individual’s lender agrees to reduce or suspend their mortgage payments for a certain period of time.
At the end of that period, they will be required to resume regular payments as well as pay extra to make up the difference. Because of this, it is important for an individual to ensure they will be in a better financial situation by that time.
Short Sale or Deed in Lieu of Foreclosure
With a short sell, a lender agrees to let the homeowner sell their home for less than they owe on their mortgage. With a deed in lieu of foreclosure, the owner voluntarily transfers the property title to the lender.
Both of these options may be less damaging to an individual’s credit than a foreclosure. However, they may have potential credit and tax implications, so it is important to consult with an attorney first.
Bankruptcy
In certain cases, filing for bankruptcy may be an option. This process may stop or delay a foreclosure proceeding, at least temporarily. A Chapter 13 bankruptcy may allow an individual to restructure their debts and keep their home.
Credit Counseling
An individual can work with a credit counselor who can provide them with resources and personalized advice for managing their mortgage payments. A counselor can help an individual assess their financial situation and negotiate with lenders on their behalf.
Hiring a Real Estate Attorney
The laws that govern foreclosure can be complex and vary by state. An individual should consult with a real estate attorney who can help them navigate these laws, represent them in court if necessary, and advise them on the best course of action based on their specific circumstances.
The best way for an individual to fight a foreclosure will depend on their particular situation. As soon as an individual believes they may have trouble making their mortgage payments, it is important for them to take proactive steps, such as contacting their lender, exploring legal options, and seeking advice from a trusted financial attorney or counselor.
It is important to note that there are scams promising foreclosure relief and quick fixes but they typically result in financial losses. It is always important to work with reputable and accredited professionals.
How Does a Foreclosure Affect My Credit Rating?
A foreclosure will appear on an individual’s credit report within a month or two after they fail to make a mortgage payment. It will remain there for seven years following the date of their first missed payment.
After seven years, the foreclosure will be removed from the borrower’s credit report. Having a foreclosure on an individual’s credit report may cause their score to drop and make it difficult for them to obtain another mortgage.
Can I Rebuild Credit after Foreclosure?
Although a foreclosure does impact an individual’s credit, there are often ways that an individual can rebuild their credit following a foreclosure. The threat of a credit score drop should not pressure a homeowner into agreeing to an unaffordable repayment plan.
There are several steps an individual can take to help rebuild their credit following a foreclosure, such as:
- Identifying why they faced foreclosure in the first place;
- Paying their bills on time;
- Making a budget and sticking to it;
- Obtaining a secured credit card;
- Keeping a low credit usage ratio;
- Seeking professional advice;
- Checking their credit reports and credit scores regularly; and
- Being patient, as it takes time to rebuild credit.
How Does Predatory Lending Relate to Foreclosures?
Predatory lending is a term that may refer to a variety of practices on the part of lenders who take advantage of borrowers by allowing them to obtain funds that they would not have access to through honest means. In general, a predatory lender will grant a loan to any potential borrower, even if that borrower will obviously not be able to repay it.
The lender may also lend money to a qualified borrower and then engage in conduct to get more money than they are entitled to. The majority of predatory lending practices happen in connection with mortgage loans.
An individual should be aware when they are in a position to take out a loan using their home as collateral and when they are not. For example, if an individual is worried about paying their medical bills or credit card debts, they should be aware that the consequences of nonpayment or late payments cannot result in foreclosure of their home.
However, failing to pay their mortgage loan can result in foreclosure. This means it would not be worth the risk to take out a home loan simply to pay back medical bills and credit card debt.
If an individual cannot afford their bills, they can also consider filing for bankruptcy.
Do I Need a Lawyer?
If you are facing a foreclosure or if the foreclosure process has already begun, it is essential to consult with a foreclosure lawyer. As noted above, a foreclosure can have an impact on your credit for many years.
One of the most important steps you can take throughout the process is to consult with a foreclosure attorney who can provide you with valuable guidance by reviewing your loan documents to check for any errors, help you understand all of your legal options, and develop a strategic defense plan that is tailored to your specific needs. Your lawyer can negotiate on your behalf with your lender to modify your loan, request a forbearance, or arrange for a short sale or a deed in lieu of foreclosure.
If your foreclosure case goes to court, your lawyer can represent you and ensure that your rights will be protected throughout the process. The earlier you consult with an attorney, the more options you will have available to you.
The longer you delay seeking legal help, the more difficult it will be to avoid a foreclosure and the number of defenses available to you may be limited.
