Most homeowners with a mortgage have a fear of foreclosure even though it’s not a huge risk. Statistics show that during the economic crisis in 2020, the number of cases was only 0.16% of homes in the U.S. That’s a record low figure.
Still, most borrowers want to know what steps they can take if their bank takes legal action to assume ownership of their home.
First, though, you need to know the definition of foreclosure. In simple words, it’s the legal process a lender initiates to take over a property and evict the occupant who failed to pay their mortgage. The former will then proceed to sell the asset to recover the balance owed to them.
If you’ve not paid your loan installments and risk losing your home, you can negotiate with the lender not to proceed to take over your house.
It may seem like a futile course of action, but the reality is that banks prefer not to foreclose. As much as they want to recover what you owe, they’ll avoid an expensive legal process if they can. Reports show that it can cost as much as $80,000, and they might also end up with a house they can’t sell.
Here’s what you should promptly do when you realize you could be in trouble and can’t make your mortgage payments.
Call Your Lender
If you’re facing financial difficulties and know that you can’t meet your loan obligations, you must contact your bank immediately to work out a solution.
Don’t wait because if you miss three to four payments, the lender can begin foreclosure proceedings against you.
While some institutions may not care, many will consider your responsible attitude.
Explain Your Situation
Financial institutions can be impersonal, but if you put up a valid case, they might be able to work something out. Here’s what you can do:
- Explain why you believe your situation is temporary. If you’ve lost your job, speak about your chances of finding new employment.
- Show evidence of your past payment record. It would help if you can prove that you’ve been consistently making your payments on time before your circumstances changed.
- Demonstrate ways you’re trying to improve your financial status. For instance, your job-hunting efforts and steps you’re taking to reduce your expenses or earn spare cash.
- Provide a specific proposal you’re able to keep. Prepare several back-up plans in case the bank rejects your first one.
- You must be able to prove that you can keep your end of the bargain if the lender accepts the terms you’re proposing.
- Make a sign of good faith by offering a lump sum amount to settle the missed installments. You may have to borrow the money for the purpose, but it’ll give the financial institution the confidence that you’ll live up to the new terms.
Ways The Lender Can Help You
Once you’ve made your case, you can expect the following scenarios:
- Repayment Plan: The bank will work out an installment scheme based on your new income situation.
- Forbearance: If your status is temporary, the lender can decide to delay foreclosure on your property if you agree to a new mortgage plan. If you’re lucky, it may forgive some of the debt.
- Modification: The financial institution may lower the interest rate. It can extend the loan terms and add the arrears to the later part of the contract.
Can You Negotiate Out of a Foreclosure?
Yes, but it depends on the strength of your case and your track record with the lender. If you’ve been prompt with your monthly payments before your misfortune, banks will likely work out new terms with you rather than initiate costly foreclosure proceedings.