WHAT IS PRE FORECLOSURE AND WHAT YOU SHOULD DO
Homeowners are sometimes faced with situations where losing their homes becomes almost inevitable. A foreclosure is one of such dreadful circumstance that may cost you your home and also land a heavy blow on your credit score. According to a statistics from the Federal Deposit Insurance Corporation (FDIC), 250,000 new families lose their homes to foreclosure every three months. However, while losing your home may be unavoidable, you can avoid a blemish on your credit ratings by making a good decision during the pre-foreclosure stage. It is vital that you understand the meaning of pre-foreclosure and the options you have before your property goes into foreclosure.
What is Pre-Foreclosure?
Pre-foreclosure is the first stage of the foreclosure process, where the lender notifies you that your property is at the risk of being foreclosed. This occurs when you default on your mortgage for more than three months. The lender starts the process by filing a default notice and letting you know that your property will be foreclosed if you don’t pay your outstanding balance swiftly. It is simply the period between the time your lender sends you a default notice and when your property is foreclosed
Usually, the foreclosure period lasts from three to ten months. However, you should know that missing one or two months’ repayment of your property loan may not trigger the foreclosure process, although it may affect your credit report. Your lender will only file a default notice if you fall behind your repayments by three months. If you fail to act, your property will be foreclosed, and it will impact your credit score negatively.
What are the causes of Pre-Foreclosure
Any circumstance that makes you stop paying your mortgage loan can make your property go into foreclosure. Some of the common reasons why homeowners default their property loan includes:
- Job loss or demotion
- Health Crisis
- Huge debt obligations
- Death of a family member
- And more.
How Pre-Foreclosure will affect your credit records
Receiving a default notice may affect your ability to obtain credit in the future. Default notices and missed payments are recorded on your credit files and may remain there for up to six years. Future
lenders will see this in your credit history may be skeptical about granting your credit request. However, if you can get out of the situation without an official foreclosure, it will send a positive signal to lenders.
There are also some rare situations where homeowners receive default notices by mistake. If you are sure you haven’t missed any payment and you got a default notice, you should contact your lender immediately so they can rectify the error. Also, check your credit report to ensure the default notice isn’t recorded there. If it is, you should write your lender and request that they remove the default notice from your file.
What you should do after receiving a mortgage default notice
A default notice is a final warning from your lender that your house is at risk of being foreclosed. A mortgage default notice will add more pressure to your present circumstance, and it can be more frustrating if you don’t know what to do.
What you do after receiving a default notice will determine whether your lender will foreclose your house and how it will impact your credit report. To ease your stress, we’ll discuss some of the steps you can take to stop your home from being foreclosed.
- Loan Modification to prevent home foreclosure
Loan modification is one of the most common methods used to stop the foreclosure process. You should contact your lender immediately if you are no longer able to meet your monthly repayments. The foreclosure process is stressful and time-consuming; your lender will be open to discussing other options with you. You can request for an extension of your loan period so you can pay lower monthly installments.
Also, you can negotiate a lower interest rate or ask your lender to shift the missed monthly payments to the end of the loan. If your lender agrees to modify your loan, the foreclosure process will end, and you will return to your regular monthly payments. Loan modification prevents your home from being foreclosed, and it will also have a lesser negative impact on your credit score. Your credit report will show only the missed payments.
- Deed in Lieu
Deed in Lieu of foreclosure becomes an option if you are unable to reach a loan modification arrangement with your lender. It involves preparing a notarized house deed and handling it back to the lender so your mortgage can be forgiven. However, accepting this arrangement is at the discretion of the lender. Variables like the current market value of your property, ease of getting a buyer, and the outstanding debt will also come into play.
If your lender agrees to accept your house deed, you will walk away without a foreclosure. Although this arrangement stops the official foreclosure of your home, it will still have the same negative effect on your credit report as a foreclosure.
- Pay off your outstanding balance
If you have gotten over your financial distress, you can contact your lender and let them know you want to pay your outstanding balance. With this option, you will have to pay the accrued balance and the penalty fee for late payment. While some lenders may request that you pay the lump sum at once, others may allow you to pay it in installment within a given period.
This option is different from the loan modification arrangement; your loan terms and conditions will remain unchanged. Paying your outstanding will stop the foreclosure process. When you pay off your outstanding balance, only the missed payment is recorded in your credit report.
- Short Sale: Contact your lender
If you are unable to work out a loan modification or deeding arrangement with your lender, it is time to talk to a reliable property acquisition expert. This option involves selling your property to pay off your mortgage. However, your lender must agree to a short sale before you proceed. Often, your lenders will accept this option because it shifts the stress of finding a buyer to the homeowner. A short sale will stop the foreclosure process. Also, it will have a lesser negative impact on your credit score than a foreclosure.
At United Property Buyers, we understand that you are presently financially and emotionally distressed. We are here to help you out of your current situation. We’ll help you negotiate with your lender and also offer you the most competitive price for your property so you can work away from the mortgage with minimal distress.
Get in touch with us now, and let’s help you avoid a foreclosure.