If you have ever been in a situation where you have been served foreclosure papers, it’s not a good situation to be in.
However, you are not alone and life happens to us all. Now that you have the foreclosure papers in hand what do you do? The first thing you need to understand is that a foreclosure of a property doesn’t happen overnight.
By law, there are steps a lender has to take before your property is foreclosed on. The law and terms may change between state lines, but the process must be followed.
What is a foreclosure?
Foreclosure is the legal process by which a lender (the creditor) with a claim (lien) to your property attempts to collect on a debt owed by taking ownership and selling the property.
Typically, the foreclosure process is triggered when a borrower misses a certain number of payments or fails to meet the terms of the agreed mortgage contract.
The foreclosure process varies between states. There are two types of foreclosures a judicial and non-judicial. However, some states have both options.
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- Assuming the loan is valid, you’ll have 30 days to bring payment to court to avoid foreclosure (and sometimes that can be extended).
- If you don’t pay during the payment period, a judgment will be entered and the lender can request the sale of your property – usually through an auction.
- Once the property is sold, the sheriff serves an eviction notice and forces you to immediately vacate the property.
Non-judicial foreclosure (Power of sale):
- The mortgage lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the established waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
When Are Foreclosure Papers Served
According to federal law, in most cases, a lender generally cannot officially start the foreclosure process or serve you foreclosure papers until you are behind at least 120 days in payments.
There are steps that a lender has to take before they can take ownership of your home.
- The first one is giving you notification that you are behind on your mortgage and you need to pay to prevent further action.
- After two missed payments, the lender will typically send you a demand letter, demanding payment and any late fees assessed. a demand letter is a professional document requesting payment of the amount that you are delinquent and that you have thirty days to bring your loan current.
- Notice of default: A notification sent by the lender stating that a payment has not been made by the predetermined deadline. You will get this notification ninety days after your first missed payment. During this step, the lender will hand over your loan to its foreclosure department to take over-processing.
The point is you have ample time to figure out what your options are and the best actions to take to help with your situation.
The key here is to be proactive and not sit around hoping that your problem will somehow magically be solved.
Some homeowners will face foreclosure at some point. That’s just the unpredictable nature of life.
What to do when you get served with foreclosure papers
The first thing you want to do if you are served with foreclosure papers is to accept. The next thing is to contact your lender to see if there was a mistake.
If you have been making your payments, this shouldn’t happen. However, nothing is perfect and this could be a mishap on the lender and not you. But if you haven’t been making your payments you know in your heart this would have been the outcome.
Regardless you need to contact your lender and see what programs they have that can help you. The lender doesn’t want your home, they want you to continue making payments so they can make money.
So they are incentives for them to help you through a tough period in your life. Here are some options for you.
- Apply for loss mitigation
- Challenge the foreclosure in court
- Filing for bankruptcy
You can also contact your local HUD-approved counselor near you or call HUD at (800)569-4287 They can stare you in the right direction on the best ways to prevent foreclosure.
What Happens if you don’t respond to a foreclosure summons?
If you decided not to respond to the foreclosure summons, for any reasons viable or not. The court will enter a default judgment in your place. This means that you have automatically lost the court case and the lender will be granted what was requested (your home).
Served foreclosure papers? How to avoid foreclosure
Now that you have been served foreclosure papers, how do you keep your home? there are a few known ways you can go about it if you want to save your home or credit. Keep in mind that these options are not for everyone.
Some homeowners who are upside down on their mortgage would rather have the home foreclosed than continue to make the payments. If you are not in that boat, here are some options:
Mortgage Loan Modification
When the terms of the loan are modified to help the homeowner keep their home.
Common modifications are lowering the interest rate and extending the life of the loan.
A short sale is a process where a lender accepts an offer for a home that is less than the principal balance.
For example, if you owe $100,000 on your mortgage, but your lender accepts a sale price of $85,000. Keep in mind that all short sales must be approved by the lender.
Deed in Lieu of foreclosure
When a homeowner signs a legal document transferring ownership of the property to the lender in exchange for being relieved of the mortgage debt.
When you are making reduced or no payments to the lender for a period of time. When the forbearance period ends typically, you will pay back what you missed or, the loan will be modified.
When a lender advances funds to a homeowner in the amount necessary to reinstate a delinquent loan.
However, the money advanced should not exceed the equivalent of twelve months of mortgage payments.
Challenge the foreclosure in court
If you believe you have a valid argument against a pending foreclosure, you can take the fight to your lender in court. You can file an answer in a judicial foreclosure or file your own suit to fight a non-judicial foreclosure.
File for bankruptcy
You can use chapter 7 bankruptcy to save your home if you are current on your payments. If not, it will only delay the process.
Chapter 13 bankruptcy will be a better option if your goal is to keep the home. You will be able to pay your delinquent balance over the span of three to five years.
Sell to a 3rd party
If you are going through the option period and you’re running out of viable options. Selling your home through a realtor on the Mulitple listing service (MLS) can be great.
However, what if your home isn’t in tip-top shape, is rough around the edges, or needs major improvements before going on the market.
You can try selling directly to an investor it might work for you.
This option isn’t for everyone and not all situations, but it can work given your circumstances.
If you’re on the fence on whether working with an investor might be a good choice.
Check out these two articles for insight into the pros and cons of selling your home to an investor.