Six Ways to Avoid Foreclosure
If you are in a pickle financially, you aren’t the only one. Many homeowners are experiencing financial hardships at the moment, but there ARE solutions. Don’t let yourself get frozen with fear or shame. Here are some options for avoiding ending up in foreclosure.
If you have been making late payments or not paying at all, you know time is the enemy. The bank will eventually come in and take your house, leaving you with no place to live and a giant black mark on your credit history. It’s better to act sooner rather than later to resolve the issue.
- Real estate foreclosures in the United States (US) hit a record 16-year low in 2020
- CARES Act is providing 365 days of forbearance for borrowers struggling to pay their mortgage due to the Coronavirus pandemic
- Foreclosures are expected to increase when the CARES Act expires
- Foreclosures might be stressful, but there are ways to avoid it
- Short sales are the most effective way to avoid foreclosure
Quick Overview of Foreclosures:
What is a Foreclosure?
Foreclosure is the legal process in which a mortgage lender repossesses the home from a borrower who has failed to pay their mortgage payments, resulting in the lender selling the property to recover the balance of the loan. There are many reasons borrowers face foreclosure that impact their ability to afford their monthly payment. Examples include unforeseen hardships, underwater mortgages, and increased mortgage payments.
How Does Foreclosure Work?
The foreclosure process begins after the borrower has missed one mortgage payment. Once the borrower misses 3-6 months of payments, the lender will file a public notice with the county informing the homeowner that they will pursue legal action if the debt is not paid, also called a Notice of Default.
Current State of Foreclosures:
How has the Coronavirus Pandemic Impacts Foreclosures?
According to ATTOM Data Solutions, foreclosures have hit a record 16-year low. The current housing market is the result of the moratorium put in place by governments, and the mortgage forbearance program initiated by the CARES Act. Under the CARES Act borrowers are eligible for 365 days of mortgage forbearance, but once the moratorium expires borrowers are expected to pay missed payments and keep up with current payments.
Foreclosure Trends in San Diego County, CA:
San Diego County, CA is seeing significant decreases in foreclosures similar to other counties across the country. This is a direct result of the forbearance program.
- Number of foreclosure filings in January 2021
- 1 in 13,955 United States housing unit
- 1 in 12,321 California housing unit
- 1 in 11,560 San Diego County housing unit
How to Avoid a Foreclosure?
Knowing how to avoid foreclosure is very important. Here are several potential options to consider:
- Sell it fast for cash also known as a short sale: A short sale is the sale of the property for less than the total amount owed to recover as much of the mortgage balance as possible. This is one of the most effective methods to avoid foreclosure. It is most cost-effective and time-effective for lenders and has less of a negative impact on the borrower’s credit opposed to foreclosure.
- Sign the deed over: A Deed in Lieu of Foreclosure is when a borrower voluntarily turns over their home to the lender. This method releases all mortgage obligations from the borrower and is not recommended unless all other options have been exhausted.
- Apply for loan modification: Lenders may offer loan modifications to the mortgage interest rate, term periods, and principal reduction as a method to bring the loan to current.
- Make up late payments: If you experience temporary financial hardship, you may contact your lender to request installment payments to cover any short-term missed payments. Making up late payments allows the borrower to stay on good terms with the lender and avoid falling into the foreclosure process.
Sell The House Quickly
In many cases, simply selling the house is the best way to go, especially if you have equity in the house. Getting your equity out of the house is a beautiful thing: you get cash and can move on with your life.
For many Americans, equity in their home accounts for half or more of their net worth. A quick sale that prevents further erosion of your financial situation may be the best case scenario available.
Selling to a professional San Diego cash home buyer like I Buy SD can be the quickest means to offload the house and may allow you to finalize the sale before another payment is due. This can save you thousands of dollars and potentially put money directly in your pocket to help you cope in these trying times.
The price you are offered for the property should come with no expenses to you (no Realtor commissions, repairs, or closing costs). At I Buy SD, we charge ZERO fees and can even provide you with cash BEFORE the close of Escrow to help you afford to move.
Borrow Against Other Assets
You can’t borrow your way out of debt, so you need to think carefully about pursuing this option. If you aren’t careful, borrowing more can just compound your problems.
If you have certain kinds of retirement accounts, whole life insurance or other financial instruments, you may be able to borrow against them to tide you over. This is only advisable if you are confident this is a short term, temporary problem and things will be back on track in the near future.
Borrowing money from family or friends is not really a best practice. If you can’t pay them back, it may cause stress, hard feelings, and socially awkward situations.
If rates have dropped since you bought the house, refinancing the property may be a legitimate means to lower your monthly payment. If you have had your wages cut but aren’t outright unemployed, simply reducing the payment amount owed may make your budget balance again.
However, this can be a deal with the devil if you don’t qualify for a prime mortgage from a bank. There are many quick money lenders out there offering what may sound like sweet deals but they can have very high interest rates and hidden costs presented in a way intended to appeal to desperate people. In most cases, that’s just a means to dig your grave deeper, not a means to fix your financial problems.
Become a Landlord
Depending on the size of the home and other details, you may be able to rent out a room to help ease your financial pain, or you may be able to pack up and move to a smaller residence yourself and rent out the entire house.
Of course, being a landlord is not a piece of cake, so this isn’t for the faint of heart. Bad tenants can make your situation go from bad to worse, so it’s also not for people who are unprepared.
Do your due diligence and research the pros and cons of being a landlord. Becoming a landlord is a business arrangement and you will need to run credit checks, show the home to potential tenants, and pay for repair costs if/when things break.
Loan Forgiveness or Forbearance
If there has been a one time tragedy in your life, such as unexpected illness or accident, your bank may be willing to work with you. They may be able to allow you to defer payment or set up a payment plan to help you get through your situation. Keep in mind that this is something you can only really ask for once for unexpected problems. You can’t call them over and over again with some new tale of woe begging for yet another extension.
If you are in real financial trouble, bankruptcy may be the way to go. Talk to a lawyer to see if you qualify. You may be able to find a pro bono lawyer to help with your case to try to keep your house.
Emergency financial measures are always stressful and always made under duress. Selling quickly may be better than losing the house. Get a fast cash offer today from I Buy SD. We will pay you cash for your San Diego house fast and can offer a very quick close. In many cases, this is the ideal solution as you get your cash, the headaches are gone, and you can move on with your life!
The idea of falling into default on your home is one of the most difficult things our family has ever had to face. We felt like we had absolutely no way out and would ultimately lose our home along with all of our financial credibility in an impending and inevitable auction. We heard about GG Homes and their ability to work with people in our situation, so we reached out. Their team took immediate action and within a week’s time, we had our home sold and enough money in hand to transition into a more affordable situation. We were able to beat the Auction clock and ultimately saved our credit from complete annihilation. The folks at GG Homes were amazing and helped us through the whole process with our dignity intact. We are eternally grateful!Escondido Home Seller