Understanding Foreclosure and How to Avoid It

Holly Peeples of Karen Bell and the Bell Team had this to say about foreclosures:

"When you take out a mortgage, you agree to give your lender the right to foreclosure, meaning they can take possession of your home if you don't repay your loan. If you fall behind on several mortgage payments, your lender may begin the foreclosure process, often lengthy and leading to months of financial and emotional stress. If undressed, foreclosures can lead to losing your home."

Continue to read to find out what a foreclosure is, and how you can avoid it.

Understanding Foreclosure and How to Avoid ItWhat is a Foreclosure?

Foreclosure happens when the lender takes control of a property after the borrower misses multiple mortgage payments. This is referred to as defaulting on the loan. In doing so, the borrower is breaking the mortgage contract they signed with their lender. The borrower will receive a Notice of Default, which means the lender will start the foreclosure process, which can take several years and result in the borrower being evicted.

Types of Foreclosures

The types of foreclosures that can occur depend on the state you live in and your mortgage terms. Some foreclosures involve legal action, and others do not. The types of foreclosures include:

  • Judicial Foreclosure: With a judicial foreclosure, the lender files a lawsuit and the borrower is notified of the non-payment. The homeowner has 30 days to make up the missed payments, otherwise the foreclosure process will proceed. Judicial foreclosure is a standard procedure nationwide, but certain states allow this approach and don't permit other types of foreclosures.
  • Power of Sale: A power of sale foreclosure is allowed in some states if your mortgage has a power of sale clause in the contract. Once you fall behind on. Your payments and your mortgage provider are allowed to put the house up for auction. A power of sale foreclosure is considered a non-judicial foreclosure as no legal action is taken.
  • Strict Foreclosure: Strict foreclosures are less common because only a few states allow them. In this case, the mortgage lender files a lawsuit against the homeowner, and if the homeowner does not make up their payments within the court-ordered period, the lender can seize the home.

How Does Foreclosure Work?

Each state has its laws about the foreclosure process and foreclosure sales. These laws can govern your mortgage relief options if you are already in foreclosure, how to post a Notice of Sale, the sale timeline, and other parts of the process.

Step 1: Missed Mortgage Payments 

If your mortgage payment is a few days late, you are probably not at risk of foreclosure. Your lender may have a grace period of up to two weeks for you to make your payment without a serious penalty.

Step 2: Notice of Default

After three to six months of missed mortgage payments, your lender will file a Notice of Default with the local recorder's office. Your lender will also send one to you via certified mail and might post the notice on your front door, depending on your state. This type of notice specifies how much you owe to bring your mortgage back into good standing.

Once you have received a Notice of Default, it is imperative to act swiftly to avoid foreclosure proceedings. You have more options and should contact your lender and a housing counselor at this point in the process, you have more options and should contact your lender and a housing counselor.

Step 3: Preforeclosure 

Preforeclosure is the time between the Notice of Default and the auction or sale of your home. During this time, if you can pay the amount specified in the note of Default, you can stop the process altogether. The exact amount of time you have depends on your state. During preforeclosure, you might also have the option to sell your home and pay back the money owed–a process called a short sale.

Step: Notice of Sale 

If you don't have the money to bring your mortgage into good standing within the allotted time frame, your lender will file a Notice of Sale. Then, your home will be placed up for auction at a specified time and place. Because the Notice of Sale is public information and has been advertised, several buyers, including investors, might be interested in buying your home.

Step 5: Eviction 

Following the auction and sale of your home, you'll generally have a few days to gather your belongings and move to a new residence. If you do not voluntarily move out, law enforcement is legally allowed to remove you and your belongings from the premises.

How to Avoid Foreclosure

Avoiding foreclosure starts with communicating with your mortgage lender or servicer. It is very unlikely the lender will let you off the hook completely, however, it can help you take action so you do not lose your home. Some of the best ways to avoid a home foreclosure include:

  • Contact a House Counselor: A housing counselor will connect you with resources and prepare you for using them. Homeowners are walked through every single option available based on their situation.
  • Take Advantage of Forbearance Programs: You may be able to apply for forbearance if you have a federally-backed loan.
  • Adjust Your Loan Terms: If you are struggling to afford your monthly loan payment, ask your lender if they can modify your loan terms, and in exchange for a longer amortization schedule, you might be able to lower your monthly payment.
  • Set Up a Repayment Plan: If you know that you are unable to make your mortgage payment for a given month, let your lender know as soon as possible. Your lender might set up a payment plan that involves more frequent but lower payments or deferral for a month or two.

The Bottom Line

To avoid run-ins with foreclosure, it is important to understand foremost the different types of foreclosures to uncover to learn the next step. Understanding the fundamentals of how a foreclosure works will allow you to learn how to avoid them better. Let the professionals at Pelican Team guide you in finding your dream home in the many beautiful communities of Fort Myers, FL today!

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