What can you do when your house is in pre-foreclosure?
Are you having trouble paying your mortgage? You are far from being the only one. With unemployment at a record high, many people are faced with difficult decisions when comes the time to pay their bills. It is only a matter of time before they receive a notice of default and their lender starts the pre-foreclosure process. Typically, lenders will send a notice after three missed mortgage payments.
So, what can homeowners do when their property is at risk of being foreclosed? The good news is that all is not lost. The lender has not taken any legal action against you, and you can still reverse the process. The easiest way to avoid foreclosure is to pay off any missed payments, including interests. However, it isn’t always possible. Nevertheless, you can still walk out without any significant adverse effect on your credit. Sometimes you can even keep your house.
Here is what you can do when you receive a notice of default, and your home is in pre-foreclosure.
Request a loan modification
If you are struggling to make your monthly payments but want to keep your home, you may be able to work out with your lender to renegotiate your loan terms. Be proactive if you feel like you may not be able to pay your mortgage on time and in full, for example, if you get sick or get laid off. You do not need to wait to be late on your monthly payments to get in touch with your mortgage agent.
A loan modification allows you to change to your mortgage’s original terms to lower your monthly payments. There are several ways to modify your loan, depending on your financial situation and your lender’s offering.
Some common loan modifications include a lower interest rate or an extended-term. You can also request more predictable payments with a fixed-rate loan if your current mortgage has an adjustable rate. If you are going through a rough patch with an end in sight, your lender may be willing to delay some payments without paying a penalty fee (forbearance agreement). More rarely, your lender may allow for principal reduction.
Negotiate a deed in lieu of foreclosure
In some cases, the homeowner may want to cut their losses and walk away from the deal entirely. If your mortgage allows, you may be able to avoid foreclosure by handing over the deed and any claim you have on the property to your lending establishment. In exchange, your lender releases you from your mortgage obligations.
Sometimes, the lender may also offer a cash sum. It allows the former homeowners to start their new life. They are also more likely to leave the property in good condition. It is commonly known as “cash for key.” By allowing the homeowner to walk away, the lenders save themselves to the lengthy and expensive foreclosure procedure.
Sell your home during the pre-foreclosure process
Finally, the homeowners are allowed to sell their property throughout the pre-foreclosure and foreclosure process. They can then use the proceeds to pay off their debt.
If you owe more than the house I worth, the bank may allow for a short sale. In this situation, the bank takes the money from the sale, but forgives the outstanding balance, allowing the homeowner to walk out debt-free. However, it is up to the owner to find the real estate agent to list the property. Homebuyers can also be wary of short sales, which tend to take a long time to close because of the amount of paperwork involved in this atypical transaction.
The homeowners can also try their luck directly on the real estate market if they think they can raise enough cash to pay off what they owe. Although they get to keep any excess leftover from the sale, time is often of the essence as the pre-foreclosure and foreclosure process run their course. It is best to price the property slightly below market value to attract buyers and offer a quick closing if possible.
Homes in pre-foreclosure also often suffer from deferred maintenance due to the owner’s lack of funds. It is another factor to consider when pricing the property to sell as it may affect financing.
Finally, homeowners facing pre-foreclosure can also opt for an alternative solution. They can sell their property directly to a cash home buyer like National Cash Offer. These companies guarantee a quick closing and a fair offer. It allows distressed home sellers to walk away in the best possible conditions.