Many homeowners fail to make timely mortgage payments after a financial crisis, being laid off from work or other unforeseen hardships. After falling behind on your mortgage payments for several months, the lender will file for foreclosure, which will eventually steer your property towards a foreclosure auction.
Mortgage defaults are relatively common, and you can reach some sort of settlement with your lender, but a foreclosure auction is a desperate time that calls for desperate measures. It is basically a sale process where potential buyers bid on your property, and the highest bidder wins.
Can you stop the auction despite your mortgage defaults? Let’s take a look:
A lender can modify the terms of your loan when you are facing a mortgage default and inability to pay back the loan. You need to apply for a modification and submit a financial package for the lender’s evaluation, alongside all your documents. The lender will examine this package and make a decision.
Keep in mind that the lender is under no obligation to approve your loan modification. However, you can work on creating a lucrative and realistic package to restore the lender’s faith in you.
Filing for bankruptcy is yet another strategy to avoid a foreclosure auction, as the courts have the power to offer an individual a clean slate by forgiving all debts that create a financial burden. However, it can also compel you to offer your lender and other creditors some form of repayment, given the status of your financials and assets.
Keep in mind that as opposed to eliminating your debts entirely, it will only buy you some more time. Just be sure to hire a competent bankruptcy attorney as the process is extremely complicated and long-drawn.
If you’re facing a mortgage default, you can save your property by voluntarily transferring the deed back to your lender. This process is known as a deed in lieu, and the majority of the lenders are hesitant in taking this road. It is due to the high level of risks as properties that are headed towards a foreclosure auction come tied with credit lines and secondary mortgages.
If you can convince your lender to undertake a potential liability, a deed in lieu can help you rescue your property from an auction. Just be sure to consult a credit expert before approaching your lender with the proposition.
A deed in lieu may not be the right option for you if you want to maintain a healthy credit score and financial wellbeing, or if you plan to invest in another house within 5-6 years. However, if your credit scores are not a big concern and you don’t intend to invest in a new property for a long period of time, a deed in lieu is the right course of action.
During the pre-foreclosure period, you can take charge of the selling process and sell your home yourself. Typically, pre-foreclosure homes are sold to private investors or companies that buy houses for cash. It is ideal for connecting with a credible real estate agent who has considerable experience in handling pre-foreclosure properties.
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