Understanding the Foreclosure Process

Foreclosure typically begins when a borrower misses multiple mortgage payments, reaching a "default" status on the loan. Once in default, the lender will send a notification to the borrower informing them of the potential foreclosure action and giving them a chance to catch up on payments. Depending on the state, foreclosure can be "judicial" (requiring a court case) or "non-judicial" (where the lender can foreclose without going to court). 

Here are ten options to consider if facing foreclosure

1.    Loan modification

2.    Forbearance agreement

3.    Refinance your mortgage

4.    Short Sale

5.    Deed in lieu of foreclosure

6.    Sell your home with a real estate agent

7.    Sell your home Subject to

8.    File for bankruptcy and then cancel it

9.    Sell your home to a cash buyer

10.  Do nothing and lose your home

In the next few posts, we would like to explain each of these options in more detail.

1.A loan modification simply means to change or modify the terms of your original loan. There are several types of loan modifications that may be available to you depending on the type of loan you have (Conventional, FHA, VA, etc.) and who is holding your loan. In some cases, this can be having the payment reduced and/or having some or all of the delinquent payments added on to the end of your loan.

Loan modifications are not automatic, and you have to qualify to receive one. You may be contacted by various entities that want to “help” you get a loan modification. Virtually, all of them charge an upfront fee that may range up to thousands of dollars, with no guarantee that you will actually receive the modification. Use extreme caution when dealing with such entities.

 You can work directly with your lender but be very leery of what they tell you. Don’t take anything you are told on faith, get it in writing. If they tell you they are delaying the foreclosure, verify that with the Public Trustee. There have been many instances of people who thought their foreclosure had been delayed or cancelled while they were talking to their lender, only to find out after the fact that their home had been sold at auction.

 Remember, only a small percentage of loan modification applicants receive approval. In the unlikely event you are approved for a loan modification, there is a 5-to-6-month trial process. During this time, if you are even 1 day late or $1 short, you will be immediately accelerated back into foreclosure.

Understanding each of these options will help you make an informed decision about the next steps to take as you navigate this difficult situation.