Tuesday, November 26, 2024 / by Teresa Pileggi
How To Stop Foreclosure And Keep Your Home
How To Stop Foreclosure And Keep Your Home
The thought of losing your home to foreclosure can leave you stressed and anxiously looking for a possible way to save it. After paying a hefty down payment, home maintenance fees, property taxes, and a portion of the mortgage; the last thing you may want is to lose your home or sell it for a loss.
Fortunately, you can use several ways as a homeowner to save your home from foreclosure. While talking to your lender is among the initial steps to rescue your home, it may only work if you are at most 120 days behind your payments. Therefore, here are the best ways to stop foreclosure if you find yourself in this tight spot.
What Is Foreclosure?
Foreclosure is a legal process in which the lender takes hold of your home when you fail to pay your mortgage on time. When you take a home loan, your home becomes the collateral. This allows your lender to take control of the house if you fall behind on mortgage payments and sell it to recover a percentage of what you owe.
If you miss a payment for a few days, you can talk to your mortgage lender or servicer to give you a grace period and allow you to pay. However, the lender can legally begin foreclosure and take your home if the grace period elapses without paying.
The process follows specific steps before you finally hand over your house. These include.
? Missed payment notification: In most cases, the lender will start foreclosure after 120 days of failing to make your mortgage payments. However, some lenders will call you after 60 or 90 days to warn you about the foreclosure.
? Public notice: A public notice or notice of default marks the official start of the foreclosure process. The lender also notifies the court or county clerk about foreclosing on the property.
? Notice of sale: The lender files a notice of sale if the court or county clerk approves that the lender can foreclose. The court or county clerk also sets the auction date, which can be as soon as 30 days or more than 120 days.
?House goes up for sale: The house is sold on the open market, allowing the lender to recoup what they lost on the mortgage.
? Post foreclosure: The post-foreclosure step involves the bank or lender evicting you from the home once they sell or possess it.
How To Stop Foreclosure and Save Your Home
Falling behind on mortgage payments can happen for many reasons, including losing your job and unexpected bills that can eat up your money. If any of these happens, you can talk to your lender to see if you can refinance the mortgage to revise the terms. Alternatively, you can take any of the following routes, saving your home for a while as you plan your finances again.
1. Mortgage Forbearance
Mortgage forbearance or loss mitigation means temporarily pausing or reducing mortgage payments during financial hardships. The option is ideal when you fail to pay your installments for a few months due to an unexpected financial crisis, although you are sure to get back on track. To seek mortgage forbearance, you can talk to your lender or their loss mitigation department to pause your monthly payments for some time.
Once the forbearance period ends, you must pay the missed months to catch up with your payments. You should also note that not everyone can qualify for mortgage forbearance. Therefore, you may need to consult your mortgage advisor before requesting loss mitigation.
2. Loan Modification
Loan modification involves adjusting your mortgage terms to allow you to comfortably pay the loan. Your lender can agree to extend your loan term or offer a lower or fixed interest rate on the outstanding balance. Modifying any aspect of the mortgage can permanently stop foreclosure.
However, that is only possible if you keep paying the modified mortgage on time. It is vital to note that loan modification does not reduce the principal amount you owe.
Common mortgage modifications include:
? Resetting your repayment term. For example, if you are five years into a 15-year mortgage, the lender can reset your term back to 15 years to account for the missed payments.
? Lowering your interest rates to make your home more affordable.
? Adding your past-due balance to your outstanding balance and adjusting your repayment term. For example, if you are $15,000 behind your mortgage payment, your lender can add $15,000 to your outstanding balance and extend your repayment term.
3. File a Lawsuit
Filing a lawsuit allows you to stop foreclosure using a nonjudicial process or outside the court. The option is ideal if the mortgage agreement contains a power of sale clause that gives the lender the right to foreclose on a property outside the court. In this case, you can file a lawsuit against the lender to delay or permanently stop foreclosure.
For the lawsuit to prevail and stop foreclosure, you must prove to the court that:
? The lender does not have the promissory note.
? The lender did not comply with the province's foreclosure mediation requirements.
? The lender violated the Homeowner Bill of Rights and other state laws.
? Did not follow all the foreclosure steps as defined by the province.
4. File for Bankruptcy
Filing for bankruptcy might be the most intimidating option to save your home from foreclosure. However, although you might lose some of your assets, filing for bankruptcy can lead to debt forgiveness, including mortgage payments. Therefore, filing for personal bankruptcy should be your last resort if you cannot pay your debts, including secured debts like a mortgage.
The first step to filing for bankruptcy is to talk to your Licensed Insolvency Trustee (LIT), who will help you determine if you are insolvent. Being insolvent means you cannot pay your debts or your total liabilities exceed your assets. Once considered insolvent, your trustee can file for personal bankruptcy under the Bankruptcy and Insolvency Act (BIA). This legally binding bankruptcy agreement provides financial protection to individuals unable to repay their debts. However, it only saves you from unsecured debts and not secured loans like mortgages and homeowners & eligibility varies among Canadian provinces.
For instance, if you file for personal bankruptcy in Ontario, your non-exempt assets are sold to repay your debts. Your equity is also used to repay your creditors. This includes your mortgage unless you qualify for home equity exemption. The home equity exemption, which came into effect on December 1, 2015, under the Execution Act, has a limit of $10,783 for primary residences. If you have more than $10,783 in equity, you may have to sell your home and pay your debts. Moreover, the exemption only applies to primary residences, meaning you may still lose your secondary properties even after filing for personal bankruptcy.
Therefore, while filing for personal bankruptcy can save you from most of your unsecured debts, it only gives you some time to plan your
finances and continue paying your mortgage. Failure to make mortgage payments can result in losing your home.
The Bottom Line: What If Foreclosure Is Inevitable?
Taking any of the above routes does not guarantee you will permanently stop the foreclosure. For instance, you may fail to qualify for loan forbearance or modification, or your lender may win the
lawsuit. Moreover, you may have to sell your home or secondary properties to settle your loans even after filing for personal bankruptcy, especially if you have more than $10,783 in equity. In any case,
implementing more strategies is vital to save you from foreclosure embarrassments, including:
? Talk to your attorney or Licensed Insolvency Trustee to see if you can buy out your equity and keep your home.
? Agreeing to a deed in place of foreclosure allows you to voluntarily hand over your home to the lender to erase any outstanding loan.
? Agreeing to a short sale allows you to sell your home for less than what you owe the lender.
The thought of losing your home to foreclosure can leave you stressed and anxiously looking for a possible way to save it. After paying a hefty down payment, home maintenance fees, property taxes, and a portion of the mortgage; the last thing you may want is to lose your home or sell it for a loss.
Fortunately, you can use several ways as a homeowner to save your home from foreclosure. While talking to your lender is among the initial steps to rescue your home, it may only work if you are at most 120 days behind your payments. Therefore, here are the best ways to stop foreclosure if you find yourself in this tight spot.
What Is Foreclosure?
Foreclosure is a legal process in which the lender takes hold of your home when you fail to pay your mortgage on time. When you take a home loan, your home becomes the collateral. This allows your lender to take control of the house if you fall behind on mortgage payments and sell it to recover a percentage of what you owe.
If you miss a payment for a few days, you can talk to your mortgage lender or servicer to give you a grace period and allow you to pay. However, the lender can legally begin foreclosure and take your home if the grace period elapses without paying.
The process follows specific steps before you finally hand over your house. These include.
? Missed payment notification: In most cases, the lender will start foreclosure after 120 days of failing to make your mortgage payments. However, some lenders will call you after 60 or 90 days to warn you about the foreclosure.
? Public notice: A public notice or notice of default marks the official start of the foreclosure process. The lender also notifies the court or county clerk about foreclosing on the property.
? Notice of sale: The lender files a notice of sale if the court or county clerk approves that the lender can foreclose. The court or county clerk also sets the auction date, which can be as soon as 30 days or more than 120 days.
?House goes up for sale: The house is sold on the open market, allowing the lender to recoup what they lost on the mortgage.
? Post foreclosure: The post-foreclosure step involves the bank or lender evicting you from the home once they sell or possess it.
How To Stop Foreclosure and Save Your Home
Falling behind on mortgage payments can happen for many reasons, including losing your job and unexpected bills that can eat up your money. If any of these happens, you can talk to your lender to see if you can refinance the mortgage to revise the terms. Alternatively, you can take any of the following routes, saving your home for a while as you plan your finances again.
1. Mortgage Forbearance
Mortgage forbearance or loss mitigation means temporarily pausing or reducing mortgage payments during financial hardships. The option is ideal when you fail to pay your installments for a few months due to an unexpected financial crisis, although you are sure to get back on track. To seek mortgage forbearance, you can talk to your lender or their loss mitigation department to pause your monthly payments for some time.
Once the forbearance period ends, you must pay the missed months to catch up with your payments. You should also note that not everyone can qualify for mortgage forbearance. Therefore, you may need to consult your mortgage advisor before requesting loss mitigation.
2. Loan Modification
Loan modification involves adjusting your mortgage terms to allow you to comfortably pay the loan. Your lender can agree to extend your loan term or offer a lower or fixed interest rate on the outstanding balance. Modifying any aspect of the mortgage can permanently stop foreclosure.
However, that is only possible if you keep paying the modified mortgage on time. It is vital to note that loan modification does not reduce the principal amount you owe.
Common mortgage modifications include:
? Resetting your repayment term. For example, if you are five years into a 15-year mortgage, the lender can reset your term back to 15 years to account for the missed payments.
? Lowering your interest rates to make your home more affordable.
? Adding your past-due balance to your outstanding balance and adjusting your repayment term. For example, if you are $15,000 behind your mortgage payment, your lender can add $15,000 to your outstanding balance and extend your repayment term.
3. File a Lawsuit
Filing a lawsuit allows you to stop foreclosure using a nonjudicial process or outside the court. The option is ideal if the mortgage agreement contains a power of sale clause that gives the lender the right to foreclose on a property outside the court. In this case, you can file a lawsuit against the lender to delay or permanently stop foreclosure.
For the lawsuit to prevail and stop foreclosure, you must prove to the court that:
? The lender does not have the promissory note.
? The lender did not comply with the province's foreclosure mediation requirements.
? The lender violated the Homeowner Bill of Rights and other state laws.
? Did not follow all the foreclosure steps as defined by the province.
4. File for Bankruptcy
Filing for bankruptcy might be the most intimidating option to save your home from foreclosure. However, although you might lose some of your assets, filing for bankruptcy can lead to debt forgiveness, including mortgage payments. Therefore, filing for personal bankruptcy should be your last resort if you cannot pay your debts, including secured debts like a mortgage.
The first step to filing for bankruptcy is to talk to your Licensed Insolvency Trustee (LIT), who will help you determine if you are insolvent. Being insolvent means you cannot pay your debts or your total liabilities exceed your assets. Once considered insolvent, your trustee can file for personal bankruptcy under the Bankruptcy and Insolvency Act (BIA). This legally binding bankruptcy agreement provides financial protection to individuals unable to repay their debts. However, it only saves you from unsecured debts and not secured loans like mortgages and homeowners & eligibility varies among Canadian provinces.
For instance, if you file for personal bankruptcy in Ontario, your non-exempt assets are sold to repay your debts. Your equity is also used to repay your creditors. This includes your mortgage unless you qualify for home equity exemption. The home equity exemption, which came into effect on December 1, 2015, under the Execution Act, has a limit of $10,783 for primary residences. If you have more than $10,783 in equity, you may have to sell your home and pay your debts. Moreover, the exemption only applies to primary residences, meaning you may still lose your secondary properties even after filing for personal bankruptcy.
Therefore, while filing for personal bankruptcy can save you from most of your unsecured debts, it only gives you some time to plan your
finances and continue paying your mortgage. Failure to make mortgage payments can result in losing your home.
The Bottom Line: What If Foreclosure Is Inevitable?
Taking any of the above routes does not guarantee you will permanently stop the foreclosure. For instance, you may fail to qualify for loan forbearance or modification, or your lender may win the
lawsuit. Moreover, you may have to sell your home or secondary properties to settle your loans even after filing for personal bankruptcy, especially if you have more than $10,783 in equity. In any case,
implementing more strategies is vital to save you from foreclosure embarrassments, including:
? Talk to your attorney or Licensed Insolvency Trustee to see if you can buy out your equity and keep your home.
? Agreeing to a deed in place of foreclosure allows you to voluntarily hand over your home to the lender to erase any outstanding loan.
? Agreeing to a short sale allows you to sell your home for less than what you owe the lender.
