How To Stop Foreclosures

Differences among states range from the notices that must be posted or mailed, redemption periods, and the scheduling and notices issued regarding the auctioning of the property. However, a general understanding of what to expect is described below.

In general, mortgage companies start foreclosure processes about 3-6 months after the first missed mortgage payment. Late fees are charged after 10-15 days, however most mortgage companies recognize that homeowners may be facing short-term financial hardships. It is extremely important you stay in contact with your lender within the first month after missing a payment.

After 30 days, the borrower is in default, and the foreclosure processes begin to accelerate. If you do not call the bank and ignore the calls of your lender, then the foreclosure process will begin much earlier.

1st Month Missed Payment - your lender will contact you by letter or phone.

2nd Month Missed Payment - your lender is likely to begin calling you to discuss why you have not made your payments. It is important that you take their phone calls. Talk to your lender and explain your situation and what you are trying to do to resolve it. At this time, you still may be able to make one payment to prevent yourself from falling three months behind.

3rd Month Missed Payment - after the third payment is missed, you will receive a letter from you lender stating the amount you are delinquent, and that you have 30 days to bring your mortgage current. This is called a "Demand Letter" or "Notice to Accelerate". If you do not pay the specified amount or make some type of arrangements by the given date, the lender may begin foreclosure proceedings. They are unlikely to accept less than the total due without arrangements being made if you receive this letter.

4th Month Missed Payment - now you are nearing the end of time allowed in your Demand or Notice to Accelerate Letter. When the 30 days ends, if you have not paid the full amount or worked our arrangements you will be referred to your lender's attorneys.

Sheriff's or Public Trustee's Sale - the attorney will schedule a Sale. This is the actual day of foreclosure. You may be notified of the date by mail, a notice is taped to your door, and the sale may be advertised in a local paper. The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by state. In some states it can be as quick as 2-3 months. This is not the move-out date, but the end is near. You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.

Redemption Period - after the sale date, you may enter a redemption period. You will be notified of your time frame on the same notice that your state uses for your Sheriff's or Public Trustee's Sale.

There are many reasons why a homeowner might end up in a financial situation that forces him/her into foreclosure. Reasons can include illness, unemployment, divorce, or an adjusted mortgage interest rate.

By almost any measure, a foreclosure is the most damaging event your credit status can encounter - arguably worse than bankruptcy. A foreclosure on your credit record will negatively impact your ability to borrow money for years. Foreclosures can be completed in less than six months from the time the loan becomes delinquent. In California, a borrower must be two months delinquent before a lender can commence a foreclosure action by recording a Notice of Default (NOD). Once the NOD has been recorded, the process can be completed in less than four months.

The best way to stop the foreclosure is to bring the loan current. To do that you would need to pay all delinquent amounts as well as the fees incurred by the mortgage lender in filing and processing. Many borrowers are not able to bring the loan current and are forced to look at other alternatives to avoid foreclosure. However, even if you are well into the foreclosure process, most lenders are willing to grant you additional time to remedy the situation if they believe it is reasonably likely that they can avoid acquiring your property through foreclosure.

Here are the seven options or alternatives to foreclosure for homeowners:

1. Refinance up to 105% of Home Value - Paying off the original loan with a new loan that offers more favorable terms to the borrower. The borrower will be qualified based on the available equity and his/her financial profile.

2. Forbearance - An agreement in which the borrower promises to stay current on the mortgage going forward, and agrees to a repayment plan for delinquent payments and accrued fees. Primarily used for borrowers with only a temporary disruption of income and wants to get the loan caught up again.

3. Deed-in-Lieu - Basically the homeowner is giving back the property to the lender. The deed is given to the lender to fulfill the obligation to repay the debt. This process does not allow the homeowner to remain in the house but it helps avoid the costs, time, and effort associated with foreclosure.

4. Bankruptcy - This should be your last resort. Seek an attorney and file for bankruptcy. This can affect your credit score and stays in your credit history for a long time.

5. Loan Modification - A revision of the terms of the loan. Usually, the revision consists of an interest rate reduction. Other revisions can include fixing a rate that was originally variable, changing the length of time in which the loan is to be repaid, or reducing the principal balance (not done very frequently). How the lender determines the terms of the modification depends on a number of factors, most notably the borrower's financial profile and ability to repay the loan.

6. Short-Sale - A property sale wherein the net proceeds from the sale are not enough to pay off the mortgage balance. The mortgage lender approves a deficient payoff amount for the release of the lien. The homeowners will need to show a hardship and may need to bring in some money to close the sale.

7. Discounted Note Purchase Or Rent Your Property - An investor buys the existing note at a discount. The investor set up a rental agreement with the homeowner and offers the homeowner the option to purchase back the property at a predetermined price within a certain date.

Everyone's situation is different. This guide will help you decide but it is not a substitute for talking with your accountant and attorney. Contact a professional real estate broker and find out what your options to foreclosure are.

A foreclosure is the most damaging event your credit status can encounter, worse than bankruptcy. A foreclosure on your credit record will negatively impact your ability to borrow money for many years. Obviously the best way to stop foreclosure is to bring the loan current thus keeping your FICO rating intact.

Before deciding on which course of action to take to stop foreclosure, you need to understand its impact on your FICO rating.

1. Refinance - Pay off the original loan with a new loan that is more favorable. This should keep your FICO score intact beyond any late payments.

2. Forbearance - You promise to stay current on the mortgage going forward and agree to a repayment plan for delinquent payments and accrued fees. Again, this should keep your credit score intact beyond any late payments.

3. Deed-in-Lieu - You basically hand over the keys to the lender. The impact on your credit score is the same as if your home is foreclosed on. Your FICO score will take a hit of 200 to 300 points.

4. Bankruptcy - This should be your last resort. It can affect your FICO score by about 400 points and your credit for the long term.

5. Loan Modification - You still want to stay in your property and the loan modification includes a favorable revision of the terms of your original loan. Your credit rating will not be negatively affected beyond any late payments.

6. Short-Sale - Your property is sold for less than what is owed the lender. This can reduce your rating 50 to 150 points depending on how many payments are missed.

7. Discounted Note Purchase Or Rent Your Property - An investor buys the existing note at a discount. The investor set up a rental agreement with you and offers you the option to purchase back the property at a predetermined price within a certain date. This should keep your FICO score intact beyond any late payments.

Always talk with your accountant and attorney before taking actions to stop foreclosure.