You have received a notice of foreclosure on your real property. It may seem pointless, but the last thing you should do is give up. Many people face life-altering events that interfere with their ability to pay their debts. Usually the last payment that is late is the mortgage, but it happens. Too many late mortgage payments mean possible foreclosure.
First, lenders don’t want to foreclose on your real estate. They are not in the real estate business and are willing to work with homeowners. If you have been unable to work out a solution with your lender or have ignored the lender’s letters and phone calls, then foreclosure is your only option.
In the state of California, there are two types of foreclosures: judicial and non-judicial. A judicial foreclosure is granted by a court to a lawsuit filed by the lender against you, and is necessary when a “power of sale” clause was not included in the mortgage agreement. Since commercial lenders often include the clause giving them the right to non-judicial foreclosure, the mortgage agreement you signed automatically gives them the power to seize your real estate to recover their losses.
With nonjudicial foreclosure, you generally have 120 days to redeem your home before you sell it. With a judicial foreclosure, your real estate property is immediately auctioned off to the highest bidder.
Under judicial foreclosure, you can request a deficiency judgment to recover some of your losses on the seizure and sale of your real property. In some circumstances, you have up to a year to redeem your property. Under nonjudicial foreclosure, you have no rights of redemption and cannot seek deficiency of judgment.
Therefore, the best thing you can do is do something before your real estate is seized and sold. Here are some ideas:
1. Talk to a HUD-approved counselor, especially if you haven’t been in contact with your lender or want information before contacting them again. An advisor can help you determine what options may be available to you, as well as help you negotiate with your lender to work out a payment schedule. To find a counseling agency in your area, call HUD at 1-800-569-4287.
2. A reinstatement may be possible, if you can promise to pay a lump sum to bring your payments up to date by a specific date.
3. Forbearance allows you to delay payments on your property for a short time, but you must be able to make current payments back again on a specific date. Reinstatement is usually used in combination with forbearance.
4. A payment plan is another option. It is used for homeowners who are behind on their mortgage payments, can now start making payments on time, but do not have the resources to catch up on the amount due in a lump sum. Typically, a lender adds a portion of the past due amount to a specified number of payments to bring you up to date.
5. In lieu of a payment plan, your lender may agree to a mortgage modification. There are two possibilities here: (1) add the amount due to your existing real estate loan and finance it long-term, or (2) if you need payments reduced, extend the length of the loan in addition to adding the amount due.
6. Selling your real estate is another option, if all else fails. Ask your lender, however, if they will stay the foreclosure to give you time to sell. Otherwise, the public will find out from their real estate agents about the foreclosure and you won’t get a very good price for the real estate. If you must sell quickly, this can also lower your selling price.
7. Called a deed-in-lieu of foreclosure, you may be able to transfer the real estate to the lender. This forgives your debt to the lender and has less of a negative effect on your credit than a foreclosure.
8. Veterans and military personnel have some additional alternatives. First, contact your VA loan representative for advice. Active duty personnel can stop foreclosure under the Soldiers and Sailors Civil Relief Act, and may be eligible for a reduction in their interest rate. In addition, veterans may be eligible for “training” programs (foreclosure resolution options) under FHA, VA, and some conventional home loans.
9. If procedural errors were made in the lender’s foreclosure or original home loan origination, you may want to consider filing a lawsuit to bar or stop the foreclosure. Consult an attorney in this case.
10. Bankruptcy is a temporary solution as it will stop foreclosure for only a short time. It can give you some leverage to resolve the situation. Again, consult with an attorney.
Whatever plan you consider to stop foreclosure on your real estate, you must implement it, contact the appropriate people, and provide any requested information to the lender and/or its trustee (representative). Don’t adopt a “wait and see” attitude. Also, put everything in writing. If you have a phone conversation with your lender or trustee, follow up with a letter that reiterates the important points (let’s say you want to make sure you understood the conversation correctly). Finally, keep your promises – you won’t get a third chance.