Foreclosure can feel like a scary time for many homeowners, but there are ways to control and manage the situation if they know how everything works. Those who have already received an official notice should keep the following in mind before they make any drastic moves.
Homeowners Have Options
The first thing homeowners may assume about their foreclosure is that they have to move out as soon as they receive the notice. They may mistakenly believe the lender has already seized control and thus holds all the cards. But homeowners do have the option to sell the home on the general market if they so choose. Ideally, once homeowners receive the money from the sale, they can use it to settle up with the lender.
Talking to the Lender
After the homeowner is notified of penalties but before the house is put up for sale, the home is technically in pre-foreclosure. Lenders may not always advertise their flexibility, but most want to work with their clients if their clients want to work with them.
Homeowners who believe it's too late to take action may be surprised to learn that it isn't over until the ink is dry on the sale papers. If the home can be sold for the amount owed (including late fees and back mortgage), then the foreclosure won't be reported on the owner's credit score. This doesn't mean that their credit score won't be affected, but it won't suffer as much as it would under a foreclosure stamp.
Homeowners first need to ask for extra time to find the right buyer. If they don't, the lender may quickly arrange for an auction of the property. Each state has its own laws for homeowners' rights. Here are a few terms to know:
- Judicial vs nonjudicial: A judicial foreclosure is one that's been decided by the courts whereas a nonjudicial foreclosure can be carried out exclusively by the lender.
- Foreclosure period: The time it takes to complete the foreclosure process. Some states allow for up to 10 months from the time the notice is served.
- Redemption period: The length of time a homeowner has to reclaim their home after it's already been sold.
State laws for foreclosures can vary widely, depending on the nature of the homeowner's debt and their financial circumstances. Some states don't offer a redemption period, while others offer a full year for homeowners to get their property back. As homeowners can imagine, there's plenty of wiggle room depending on the location of the home.
Online sources can certainly help homeowners get started, but only a real estate expert can provide the customized advice a homeowner needs. Foreclosures have no trouble attracting buyers, but there's an art to getting buyers to pay what the house is really worth.
An agent with experience in foreclosures can use their limited time and resources to extract every last penny out of the property. There's an art to doing this though, which is why sellers should invest in an agent who specializes in these untraditional sales.
Striking a Deal
Lenders don't want to put homes up for auction. Their expertise is in finance, not in staging living rooms and making websites for homes. In other words, lenders may be willing to settle for less than what a homeowner owes if the homeowner can save them the work of the sale. Homeowners who research agents, explain their situation, and work out a payment plan may be surprised at what they can achieve. A motivated homeowner who stays in constant communication with their lender is always going to be preferable to one who ducks their calls or ignores emails.
How Do Short Sales Work?
A short sale is one where the lender agrees to settle up with the owner for what the home is sold for (generally for less than what the owner is owed). Short sales can be complicated, especially considering that each state makes its own rules. Some states will still punish owners if the home doesn't meet financial expectations. Homeowners are sometimes shocked to get a bill for a balance they didn't even realize they owed. Again, talking to a mortgage expert can make it easier to understand the terms and arrange the details of a short sale with the lender.
Foreclosures can get messy, but they're not impossible to navigate. And while it may be difficult to devote the resources toward setting the matter straight, it's ultimately worth it for the homeowner's financial health and long-term credit score.