The Threat of Home Foreclosure – An Emergency Survival Guide
Buying a home is one of the most important decisions anyone can make during their lifetime. In many ways, home ownership is a central component of successful living. Home buyers often save money for an extended period of time, stockpiling resources to be used just for this particular major purchase. And, this is before even considering what home to buy until after financing is a real possibility.
Securing a reasonable mortgage is easily the most important step in the process, and making sure the repayment schedule fits the budget is central to a good decision to finally purchase a home. But, unexpected events occur, and many times home buyers find themselves in a situation of potentially losing the property without making some adjustments when foreclosure appears imminent.
Luckily, creditors also understand that financial calamities happen for everyone at some point, and being able to restructure a loan or make special payment arrangements involving a mortgage can be a necessary adjustment for many home buyers.
Avoiding Foreclosure Helps Both Parties to a Mortgage
Creditors almost always are more interested in recovering their invested resources than they are in repossessing a mortgaged property. Reclaiming ownership of a mortgaged property is what happens when all other potential measures fail.
Foreclosing on a property is an expensive legal undertaking, and often the value of the home falls when it is put back on the market. Many creditors actually do not file a foreclosure unless it is absolutely necessary to balance their account spreadsheets, even though the legal right to repossession has been available for a while.
Creditors are in the money business and not necessarily in the real estate business. This mean that lenders are always ready to make some sort of payment arrangement that meets the needs of the buyer as well as their business entity.
Judicial vs. Nonjudicial Foreclosure
Judicial foreclosure is the formal legal process of retaining official physical possession of a mortgaged property after having received a favorable ruling from the court. This is effectively a civil court order issued to designate the new owner, and defaulting purchasers are given a set amount of time to vacate the property before the creditor is given full control.
The evacuation order does not begin until after the order is issued, many times taking as much as a year to get the repossession request in court. A non-judicial foreclosure is effectively an amiable agreement by both the purchaser and creditor that property control can transfer in a quicker fashion.
This is often an advantage for the home buyer who cannot work out a new feasible payment agreement because it occurs out of court and there may not be an official public record. This informal arrangement can help protect the buyer’s credit rating following a foreclosure in some instances when there is no associated bankruptcy filing.
Judicial Foreclosure Requirements
Judicial foreclosures differ from nonjudicial foreclosures regarding notification rules when a mortgage is in jeopardy as a result of missed payments. Formal foreclosures on a mortgage are governed by federal law that requires all lenders to follow specific notification guidelines before beginning the actual court action. However, this does not mean that state law does not have an impact on the process.
The actual process is still dependent on the state laws in which the property is located. Foreclosure proceedings are usually filed by the service lender, which many times is not the actual mortgage owner, and borrowers must be notified twice within the 45 days immediately following a delinquent payment.
The first contact must be delivered within the first 36 days of delinquency and reissued within the next nine days when there has been no response from the borrower. However, the actual foreclosure cannot officially begin until after 120 days of payment delinquency.
Nonjudicial Foreclosure Requirements
For nonjudicial foreclosures, state law usually governs the notification process, but notification in writing is still required by the actual mortgage owner. This is what normally occurs when homes have been purchased on personal contract, and the parties actually have more latitude in reaching a payment recovery agreement.
This could include increased payments for a set amount of time or allowing a home purchaser to miss payments without any punitive action. It is important to note with judicial foreclosures that many times the service lender that initiates the foreclosure and the actual mortgage owner are not the same business entity, as many mortgages are actually owned by several “investors” in the loan.
Nonjudicial repayment plans can actually result in a completely renegotiated payment structure when both parties are agreeable, depending on whether the seller actually wants to be rid of the property. However, private mortgages generally allow fewer protections for the purchaser in many instances.
Utilizing Bankruptcy Protection
Many times filing bankruptcy can forestall a foreclosure for an extended period of time because the bankruptcy filing will cease all foreclosure proceedings until the bankruptcy is finalized. There are different methods of using bankruptcy, but it is important to remember that filing bankruptcy is a very serious financial decision that can impact a purchaser’s credit rating for a significant period of time.
The question usually comes down to whether to use Chapter 7 bankruptcy to discharge certain debts that will free more resources while renegotiating the terms of a loan or whether to file Chapter 13, which is directly focused on protecting the mortgage property for the purchaser.
This can be a complicated legal process that requires the expertise of a bankruptcy attorney who understands how to protect personal property, but often is the most effective method of retaining a home by establishing a five-year plan that results in repayment of delinquent amounts and makes the payment schedule current.
It is important to remember that all states also have some form of borrower protections for homeowners who cannot negotiate a new agreement regarding retaining a home. But, it is likewise as important to think the process through completely with the advice of a bankruptcy attorney or foreclosure mediator service that understands when financing problems can or cannot be solved.
Many times it is not the home that is being saved, but it is actually the financial investment in the home that is part of a long-term family estate plan.