Pre-Foreclosure Help Guide

We want to provide every family with the resources and knowledge to avoid foreclosures.

A foreclosure is a lawsuit, and the court has to serve you the paperwork. You will receive a notice from Lis Pendens. It’s a Latin term that means a lawsuit has commenced.

Don’t be afraid of the process server. Accept the summons. Don’t ask the process server for any advice. They are hourly employees and are not allowed to give you legal advice. Most likely, it will be the wrong advice anyway. You have 20 days to respond to the summons. It is crucial that you respond to the summons within 20 days!

If you don’t respond during the 20-day time period, the judge will “fast track” the foreclosure case, and he or she will be less likely to grant any delays in the process.

We have created a guide of 10 options to help property owners understand their options; read below.

1.   Refinance

You have the option to refinance your property with a bank prior to falling behind on mortgage payments. If you anticipate financial challenges in the coming months, refinancing in advance allows you to change the loan terms.

Refinancing with rising interest rates may leave you with higher monthly payments. Make sure you know all your monthly expenses before you agree to refinance.

Some lenders might recommend increasing your loan duration from 30 years to 40 years to lower your monthly payments. Leaving you with less equity and more debt. It would take you several years longer just to break even.

If you are behind on mortgage payments, refinancing may not be possible unless you have a VA loan.

2. We Partner With You to Renovate and List Property For Sale

If it is feasible, Property Selling Help is willing to partner with you to renovate the property and help you sell it while you still own it. We can also give you an offer to buy the property if it makes more sense for you.

3.   Reinstate The Mortgage

The quickest way to save your house is to reinstate the mortgage. That means that you pay back all the missed payments, late fees, penalties, and attorney’s fees to the bank. Most people in foreclosure don’t have the money to reinstate the mortgage.

How to Reinstate Your Mortgage

A common mistake many homeowners make is that they think they can get the reinstatement amount directly from the mortgage company. Now that your bank has filed the foreclosure, you have to deal with the bank’s attorney. You can go to your county’s clerk of the court website and look up your case if you have not yet been served with the foreclosure summons by a process server.

You can contact us, and we’ll be glad to look up your case number and give you the attorney’s information so that you can contact them and order the reinstatement amount. Remember that the reinstatement amount will contain the entire amount that you owe. Also, the attorney will not accept partial payments. It will be good for up to 30 days. We’ll be glad to guide you through this process free of charge.

4. Mortgage Forbearance

A forbearance agreement with the bank allows you to lower or stop your mortgage payments for a temporary amount of time. Potentially leading you to higher monthly payments after the forbearance period expires. Also, depending on the terms of your forbearance with your servicer, you may have to pay more in interest and other fees due to paused payments. Missed payments may be reported on your credit history.

Under the Cares Act, conventional loans backed by Fannie Mae or Freddie Mac currently have no deadline for requesting initial loan forbearance on conventional mortgages. Borrowers with FHA, VA, and USDA loans can no longer request forbearance, according to the Cares Act.

There are options after your forbearance period, which include a repayment plan, deferment, loan modification, and refinancing. Refinancing would be available for FHA, VA, and USDA loans.

5. Repayment plan:

Part of your past-due amount is added to your monthly mortgage payment. Payment plans are typically 6 months.

6.   Deferment:

Under this option, a portion or all of your past-due non-interest-bearing balance is set aside for payment when your mortgage is paid off, you refinance, or you sell the home.

The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac would change their payment deferral policy to allow borrowers facing financial hardship to defer up to six months of mortgage payments.

7. Loan Modification:

If you qualify, your mortgage rate and/or term may be modified in order to include your past-due balance. The mortgage would typically be extended from a 30-year mortgage to a 40-year mortgage, thus lowering your payments. It takes anywhere from 1-2 months to negotiate the loan modification and receive an answer from your mortgage company.

Owners with FHA, VA, and USDA loans might still be able to take advantage of the 2021 mortgage stimulus program, which lowers payments by as much as 25% via a loan modification. However, at this point in 2023, availability is very limited.

8. Deed in Lieu of Foreclosure

Homeowners have the option to pursue a deed in lieu of foreclosure, which means you’ll voluntarily hand over ownership of your home to the lender. When you sign the paperwork, the lender will forgive the remaining balance on your loan.

Of course, the outcome of a deed in lieu of foreclosure is the same because you’ll need to leave your home. But this option allows you to avoid an official foreclosure. Your credit will also take a hit between 50 and 125 points.

9. File bankruptcy

Chapter 13 bankruptcy will stop the foreclosure. The bankruptcy trustee will negotiate with your creditors and work out payment arrangements. Bankruptcy is expensive and difficult; this should be considered your last option. Bankruptcy will decrease your credit score.

You pay back what you owe (“cure your arrears”) through a 3-5 year repayment plan. While you make the payments on (and eventually pay off) your arrears, you will be able to keep your property. Keep in mind: you will need at least enough income during this time to cover both your arrears payments and your current mortgage payments.

Chapter 13 bankruptcy may turn your second and third mortgages into unsecured debt if your property’s fair market value is less than the principal balance due on your first mortgage. If this is the case, then the second and/or third mortgages may be stripped, meaning they do not need to be paid back.

As long as the house is sold at a loss to the bank, your bankruptcy status will not be affected. Also, there is no tax liability for any mortgage amount forgiven. The IRS doesn’t consider it taxable income if it was included in a bankruptcy.

10. Short Sale

If you owe more than the house is worth, you can do a short sale. The bank will allow us to buy your house for less than the amount owed. The remaining, unpaid amount will be written off and forgiven.

Now that the foreclosure has started, every day that goes by is one less day you will have to work with.

Reach out to our team to get personalized assistance with any of these steps. We look forward to helping you in any way that we can. I look forward to this partnership and helping you find the best solution for your unique situation.

DISCLAIMER

I am not a CPA, attorney, insurance contractor, lender, or financial advisor. The content in these guides shall not be construed as tax, legal, insurance, construction, engineering, health & safety, electrical, financial advice, or other and may be outdated or inaccurate; it is your responsibility to verify all information yourself.

We understand your foreclosure situation is urgent. Feel free to call if you don't want to fill out the application below; we'd love to help!

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