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Everything You Need to Know to Avoid Foreclosure

Foreclosure happens when the lender attempts to recover his or her loan balance from a borrower who has stopped paying the lender, thereby forcing the lender to sell the borrower’s asset which was used as collateral to recover his or her loan balance.

The mortgage holder usually states a time for foreclosure in the contract documents, and the time usually after the mortgage holder has defaulted his payments. Several types of foreclosure exist in Canada, the United States, and other parts of the world.

What are the Two Types of Foreclosure? 

The two types include judicial foreclosure and the power of sale.

Judicial Foreclosure

This type of foreclosure takes under the supervision of a judge.

This type of foreclosure is available in most states in the United States and the lender usually initiates this process by filing a lawsuit against the borrower. All the involved parties are then notified about the foreclosure.

However, the notifications vary from state to state. A judicial officer is involved in this process and is responsible for supervising the sales and effects title dead and any other legal papers.

Power of Sale

This type of foreclosure is known as non-judicial foreclosure.

This type of foreclosure occurs when a deed of trust is used instead of using a mortgage. The mortgage holder sells his or her property without the supervision of the court as the judicial foreclosure.

The advantage of using this process is that it is cheaper and faster as compared to judicial foreclosure.

What are the Consequences of Foreclosure? 

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People fail to make mortgage payments for various reasons. However, whatever reason it is, it is important that you communicate with the mortgage owner to avoid foreclosure. Foreclosure has long-lasting consequences, some of which include the following.

1. Loss of the Home

Foreclosure results in being evicted from your home. You end up losing your home and any other investment that you had to make in the house.

This is devastating both for you and your family. Too much pressure and stress force you to look for something slightly cheaper so that you can move in with your family.

2. Causes Nervous Tension

A foreclosure also puts you in a stressful position because you have no idea when your home will be foreclosed. The thought of waking up one day and you no longer own your house is stressful and heartbreaking.

3. Reduces One’s Credit Score

Assuming that you want a new home, and your previous house is on record that it was foreclosed, then this will affect your chance of getting a new home. In addition to that, credit companies will not give you loans because they have the impression that you will not pay on time.

Many employers look at one’s credit score before bringing them into their companies. If your credit score is low because of a foreclosure, then it will lower your chances of getting employed in a good company. However, you can avoid foreclosure by ensuring that you have cleared all your loans and your credit scores are in perfect shape.

Advantages of Buying a Foreclosed House

1. Discounted Prices

Foreclosed homes have the potential of having discounted prices as compared to houses within the same area.

This advantage helps one in buying a property at a reasonably discounted price. This also allows one to buy a perfect property that they could not have got by buying through the normal price.

2. Opportunity to Make Improvements

The seller of the foreclosed home is likely to invest more in renovations and repairs, and this is a good deal. You as the buyer will end up in a perfect and clean house, at a cheaper price.

3. Reduced Title Concerns

Anyone buying a house is concerned about the title.

When you buy a home from a homeowner, you might not get a clean title, meaning that you have the legal right to own a property. In addition to that, the bank clears the title for you and you do not need to worry about that anymore.

Disadvantages of Buying a Foreclosed house

Buying a foreclosed home is much riskier as compared to buying a home that is occupied by the owner. Some of the cons of buying a house in foreclosure include the following.

1. Increased costs of maintenance

Buying a home that is in foreclosure means that you are going to spend more on repairs and maintenance.

This is because the homeowners do not care about leaving the house in good condition since he or she is losing the house to foreclosure. If you experience damages in the house, the homeowner might not bother to repair it and this may worsen and become costly over time.

In some cases, the homeowner destroys the assets intentionally because he knows that you will have to repair the house either way.

2. The process is slower

When you are buying a foreclosed house, the purchase process may be slightly slower and involves a lot of paperwork.

There are additional documents that you need to complete filing before closing. In addition to that, if you are awaiting a response from other parties and the bank then you might wait forever due to the slow processing of paperwork.

3. High demand

Buyers increase and this leads to competition especially when the foreclosed property if amazing and in good condition.

When many buyers, even investors find these deals, there will be many offers, most of which will be attractive to the seller. The buyer is then forced to turn the whole thing into bidding, where the highest bidder takes the property.

Twelve Tips to Help You Avoid Foreclosure

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Many people wait until things become worse and their homes are foreclosed, then they start communicating with the buyer. When a foreclosure happens, you are forced to leave your home and this has serious negative effects on your ability to access credits in the future.

There are some tips that you can follow to avoid foreclosure.

1. Talk to your Lender

No one knows the time of the day when they will experience problems in life.

However, as soon as you realize that you have a problem, contact your lender and try explaining the problem to them. Some will empathize with you and might give you an extension on your loan repayment date.

Your lender can help you through this difficult time and you might end up keeping your house.

2. Understand the Available Foreclosure Options

Not everyone is familiar with tips on avoiding foreclosure.

The internet has provided these tips and you can look for tips and understand the various options that you have. Choose the most favorable option and save yourself from being thrown out of your home.

3. Avoid Being Scammed

Some companies will talk you into paying huge amounts of money so that they can prevent foreclosure from happening.

You will end up throwing money to the drainage when you will notice that the self-proclaimed companies have conned you. You should use this money instead to pay for the mortgage.

4. Do not Ignore the Problem at Hand

Ignoring that foreclosure can happen in your home is the worst decision that you can make as a home borrower. Ignoring the problem makes you oblivious to the issue at hand and this is more likely to cause you great loss.

5. Respond to Messages and Emails from your Lender

Some lenders are very patient and they can wait until you can settle your loan balance on the agreed period.

When the period elapses, they can add more time to help you pay in installments. Whenever your lender sends you a mail, respond to the email immediately you see it, and get to know what the lender wants to share with you.

Communication is key between lenders and borrowers and can consequently increase your potential for acquiring another home. Respond to the email even when you are not able to pay your loan balance at those specific periods, and explain the problem to the lender.

6. Use your Assets

Using your valuable assets to pay for your loan balance is the right path to follow to avoid foreclosure. If your lender sees that you are willing to lose your possessions to pay for your loan, he or she will be impressed and will rate you positively.

This increases your credit score ratings and you can acquire more loans in the future. Furthermore, one of your family members can look for an extra job to bring more money to the family, and you can use some amount to reinstate your loan. T

his shows the lender that you value your home and you are willing to do anything to keep your house.

7. Negotiate with the Lender

The moment you realize that you are experiencing difficulties reinstating your loan, you can negotiate with your lender on a temporary payment plan or for him or her to modify the loan.

However, do not wait until it is too late to negotiate because if you do so, chances are high that the lender will not respond to your request. Negotiate before the payment date for better feedback from the lender. In most cases, the lender might ask you to sell some of your assets to raise the money.

So, when going for this foreclosure avoidance option, just be ready to sell some of your valuables.

8. Sell the House

This is another perfect way of avoiding foreclosure. If the house you are living in costs more than what you owe your lender then this is the right time to look for the perfect buyer for your house.

You can then use the amount paid for the house to pay your lender before or on the agreed time, but not past the deadline. You will have cleared your loan and this will give you more chances of requesting loans from various financial institutions.

9. Consider Bankruptcy

Bankruptcy is not an excuse that you can lean on and go free.

When you file for bankruptcy, investigations will be done to ensure that you are indeed bankrupt and that you are not making anything up. After it has been verified that you are bankrupt, and you are experiencing difficulties agreeing with the lender then you can file for bankruptcy and avoid foreclosure.

10. Seek professional help

A professional will help you understand some of the options that you have on foreclosure.

There are different mortgage programs that you can get into after a mortgage finance professional has helped you understand fully the available options. The final decision is now on your coat but you can involve the professional to help you in making a well-informed decision.

11. Modify the mortgage

Mortgage modification is one of the easiest ways to help you avoid foreclosure.

This process involves communication between your lender and you. The lender may decide to permanently change and slightly adjust the initial terms of the mortgages.

Alternatively, the lender may also decide to extend the payment period time for you. So, that the payment plan is much affordable to you.

12. Forbearance

This is a situation where the bank agrees not to foreclosure your house and you have shown effort in that you will pay all the missing amounts soon.

You might be facing some challenges at that particular time, making you financially unstable. In addition to that, if you have decided that you are selling your home, then the bank will not foreclosure the house. To qualify for this, you must ask the bank to consider this option that you are interested in.

Wrapping Up

In conclusion, foreclosure is every home borrower’s nightmare.

You have no idea when the house will be foreclosed and it is not guaranteed that you will have money to pay for your loan balance at that specific time. Before this happens, choose a solution that best fits your needs.

Seeking professional help is the best way to avoid foreclosure. Professionals are up to date with new options of avoiding foreclosure and the professional will advise you accordingly.

As a last chance effort, before you lose your house and your equity, consider selling your house for cash. Companies such as help homeowners come to a very quick resolution and can get you some cash for your house before you completely lose it forever.

Selling your home quickly can also preserve your credit, so you can financially recover and become a homeowner again in the future when your finances improve.

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