How to Stop Foreclosure
With the economic downturn of recent years, home foreclosures have become more and more common, with 4% of all U.S. houses estimated to be currently undergoing foreclosure. Read on to find out exactly what foreclosure is, how the foreclosure process in California works and ways to avoid foreclosure.
What is Foreclosure?
Foreclosure in California is essentially when a homeowner defaults on their loans for several months in a row, and as a result all rights of the homeowner are terminated and handed over to the mortgage or loan company that backed their purchase of the house. In a nutshell, foreclosures usually involve an individual’s personal property becoming bank owned due to failure to make mortgage repayments.
What Causes Foreclosure?
Foreclosure is caused by a homeowner failing to pay their mortgage repayments on time for several months in a row. In California, if an individual has failed to repay their mortgage or other loans for three months or more consecutively, they risk having their property going into foreclosure. Typical causes of foreclosure include unemployment, bad investments, over-extended loans, large medical bills, death in the family and divorce.
The Foreclosure Process
California foreclosures typically take 8-9 months to complete. However, in some circumstances the process can be much shorter or even longer, with some foreclosures drawn out over a period of several years.
Here is how the foreclosure process usually works:
- The homeowner defaults on their mortgage for several months in a row
- The homeowner receives a Notice of Default from the mortgage company
- If the homeowner does not make repayments within the set amount of time (as stated on the Notice of Default) a Notice of Sale is published
- After 20 days the property may be put up for auction
How Can I Prevent Foreclosure?
If you are a homeowner and have defaulted on your mortgage payments, you may be at risk of losing your property to foreclosure. Fortunately there are multiple ways you can prevent foreclosure from happening to your home. Stop foreclosure of your house by taking one of the following actions listed below:
Renegotiate Your Mortgage
If you have struggled to pay your mortgage because of temporary financial difficulties, you may be able to re-negotiate your mortgage for smaller repayments. If you can show your mortgage company that your financial difficulties are only short term, the lender may be open to renegotiation.
Upon successfully renegotiating your mortgage, your monthly payments will go down, setting you on the road to financial recovery and helping you avoid the foreclosure of your property. However, bear in mind that renegotiation will lead to your mortgage repayments being stretched out over more years and the interest rate may be increased, so you might end up paying more for your house in the long run, even though monthly payments have been reduced.
Renegotiation of a mortgage can be a wise solution, but should only be considered if you see yourself being able to effectively tackle those reduced loan payments for the foreseeable future.
Take out an Additional Loan
If you are at a high risk of losing your home to foreclosure, taking out an additional equity loan may be your only option. Additional loans can help avoid foreclosure as they can cover your next few mortgage repayments until you’re financially afloat again, but they will pile on additional debt, which could hurt you in the long run.
If the financial crisis you’re facing is short term, consider an emergency loan like a car title loan, neighborhood loan, or traditional pawn shop loan to come up with quick cash to cover your mortgage payments, but remember that you will be adding long term debt, and only proceed with this strategy if you are sure that your financial situation will soon be improving.
Sell Personal Assets
If you are facing foreclosure and own additional property then consider selling it immediately. Furthermore, if you are able to sell your car or other valuable personal items, do so, as long as you don’t need them to produce income. Producing income in this way is far safer in the long run than taking out collateral loans, as you won’t be charged interest to make repayments, and can use the cash you’ve produced for whatever you want.
Although it may be sad to see your vacation home or second car go, if it helps you keep your home and allow you to avoid foreclosure, it is more than worth it. Bankruptcy and foreclosure can both often be avoided by simply selling personal items, and using this money to pay your mortgage repayments on time.
Selling your stuff can easily be done either in person or online. Put things up for auction and reduce the asking price so that you’re assured to get the money you need quickly enough to make your loan repayments on time. Sell jewelry, electronics and other valuable items online through websites like eBay and Craigslist to get access to a wider audience.
Consider a Short Sale
A short sale is an option many people take in order to avoid foreclosure on their home. To put in plain English, a short sale is selling a property for substantially less than the value of the loan on the property, in return for the new homeowner taking on the responsibility of paying the banks back the money they loaned to the original homeowner.
Ultimately the original homeowner will lose the majority of equity they had in their home, and may still have to pay additional fees and penalties, but short selling a property does allow them to avoid foreclosure and its very damaging effects it has on their credit. Short sales have become extremely popular around the country, as they are one of the most effective ways to stave off foreclosure.
Sign a Deed in Lieu of Foreclosure
When an individual is facing financial ruin due to their mortgage, with no viable way of making repayments on time, they may choose to sign a deed in lieu of foreclosure. This is a signed document which states the homeowner is giving up all financial responsibility and ownership of their home to the mortgage company.
This may sound like one of the most unappealing ways to stop a foreclosure, but it can be the last resort for many who have fallen upon hard financial times. Signing a deed in lieu of foreclosure has the benefit of not having to go through the humiliating foreclosure process and it also doesn’t affect the homeowner’s credit score as badly as a foreclosure would. This option is therefore often regarded as the lesser of two evils when facing a looming foreclosure.
File for Chapter 13 Bankruptcy
In some cases, filing for Chapter 13 bankruptcy can help avoid foreclosure. When an individual files for Chapter 13, all of their loans and mortgages will be temporarily put on hold, until they have been renegotiated through third party bankruptcy lawyers and bankruptcy creditors.
Once repayments have been renegotiated, the homeowner should then be able to pay back their debts for much less interest and generally lower fees. If these repayments are made on time and consecutively, the homeowner should be able to keep their home and prevent foreclosure from happening.
However, only “wage earners” can file for this type of bankruptcy. The homeowner must be able to prove that they have a stable and significant income which they can use to make back repayments for their debts in order to successfully file for Chapter 13 bankruptcy.
Car Capital Financial
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