How to Save Your Home from Foreclosure
July 18, 2019
What is Foreclosure?
A foreclosure is when the homeowner fails to make payments on the mortgage of their home. As a result, the lender reposes the home or asset to repay the rest of the loan.
Texas has two types of foreclosure: judicial and non-judicial. Judicial foreclosures are when the foreclosure is handled through the court system. A non-judicial foreclosure happens outside of the court system. Non-judicial foreclosures are more common.
In Texas, the non-judicial foreclosure process can be quick, as little as 41 days. You should be getting two notices from your bank: a notice to default and a notice of acceleration. A lender cannot start the process of foreclosure until these notices are given. You will have 20 days between the notice of default (requires you to pay the past due amount and any fees) and the notice of acceleration (payment of entire amount of mortgage). After the first two notices, you will receive a notice of sale to inform you that your home will be going into foreclosure. This notice will also be the moment that the foreclosure is announced publicly.
The notice of sale will inform you of the date the home will go to auction. You will have at least 21 days between the notice and the day of the auction. You will have the ability to sell your home and forgive your foreclosure up until the home is sold at auction or becomes bank owned, Foreclosure auctions in Texas occur on the first Tuesday of every month.
Some states have a right to redemption that allows homeowners to buy back a house after it has been bought at auction. Unfortunately, Texas isn’t a state that has a right to redemption period. However, tax related foreclosures often include a redemption period.
To learn more about the non-judicial foreclosure process, click here.
The Negative Effects of Foreclosure
Having a home go through foreclosure can have a long lasting effect on your daily life. You lose your home, and also any equity that you might have built up. It can take up 7 years for you to be able to buy another home. You also damage your credit. The better your credit is, the harder your credit score will be hit by foreclosure. The damage to credit can make it much harder to get new lines of credit. It can also make your bills hard to manage as insurance rates and interest rates will go up.
The plus side is that no one is rooting for you to go through foreclosure. The bank doesn’t deal with real estate, and much prefers cash. They stop making money on interest when you no longer have a mortgage. Banks usually prefer solutions that doesn’t require them to take possession of the home. There are plenty of ways to negotiate with the bank. This article will focus on how to get out of foreclosure using the asset of the home itself. If you would prefer a solution that doesn’t involve your home, like loan modification, talk to an real estate attorney today.
Thinking of Filling for Bankruptcy?
Their are so many solutions available to fixing foreclosure. Most of them fit the needs of certain homeowners. Bankruptcy is what most people consider when going into foreclosure. But if bankruptcy isn’t the right solution for you, it can make it difficult to take advantage of the other solutions available. After you have entered bankruptcy, buying the home becomes a bigger risk for investor. If you end up having to sell the home, you will probably have to wait until the bankruptcy ends.
However, bankruptcy is the best fix for those who can’t pay their mortgage because their credit payments are sucking up all of their paycheck. If you didn’t need to make credit card payments, would you be able to catch up on your mortgage payment? If you answered “yes”, you should contact a local real estate attorney today to learn more.
Jenny gets paid $2,500 a month. Her mortgage is $1,000 a month.
She has recently gotten a serious illness which has increased her bills. Jenny now has $2,000 in monthly payments from student loans, medical bills, and credit card debt.
Unable to now make her mortgage payments she has fallen into foreclosure.
Jenny is the perfect case for Chapter 7 bankruptcy. She works with an attorney, and takes the hit to her credit. Without the monthly payments she is able to catch up on her mortgage and keep her house.
What Options Are Available?
There are a few ways to stop your foreclosure through home cash buyers or investors. You might have received several letters with offers to buy your house. These letters will be from investors trying to buy your home before your home hits auction. Remember, you can always sell your home up until the day before it hits auction!
Do you want to stay in the home?
Leaseback
If your intention is to stay in your home, you might want to consider a “leaseback”. A leaseback is where the investor buys the home, and then they rent it back to you. This gives the homeowner the opportunity to stay inside the home. You can also have it written in the contract that you will have the opportunity to buy the house back.
This can be a dangerous route to go. You would go from being a homeowner to a tenant. Renting costs will be higher than the amount you were paying on the mortgage. This can be difficult for homeowners who have recently gone through foreclosure. As a tenant, if the homeowner is unable to make rental payments the investor will have the power to evict you. Another risk is many homeowners have a hard time buying back the home while renting.
Do you want to sell the home?
Short sale
A short sale is when the bank takes less than the full amount on the mortgage to sell a home. Short sales are only used when the amount of the mortgage is greater than the current value of the home. Short sales involve the investor negotiating with the homeowner’s bank or lender. These negotiations take time. This is not an option for someone who is late in the foreclosure process.
Do you qualify for a short sale?
To qualify for a short sale a homeowner should have a mortgage that is higher than the value of the home.
The homeowner will also have to submit a letter of hardship. A letter of hardship should explain to the bank why you are unable to continue making payments. These circumstances can include job loss, injury, death, or divorce.
If you have any assets, such as stocks or bonds, the bank will be less likely to approve a short sale. They will view these assets as capital that could be used to pay of the mortgage.
Property should have a clear title. This means that there is only one person or entity that has a lien on the home. If you had two different lenders on your home, you will be unable to do a short sale.
The property should not be in perfect condition. A “fixer upper” is an investor’s dream, but banks want something they can sell easily. The worse the condition the home is in, the more likely you are to get a short sale. You should also pay attention to your neighborhood. If you’re in an area where real estate is in high demand, it’ll decrease your chances.
The biggest danger with short sales is that the bank can always say “no”, but if you have negative equity in your home a short sale is worth learning more about.
Selling your home
Selling your home is the most simple and straightforward solution to foreclosure. By selling your home to an investor, you shrug off the burden of the mortgage and are on your way to repaired credit. The biggest negative to selling to a cash buyer is that they buy homes below market value to make a profit. If you sell to an investor, you will be getting less than you would from selling the traditional way with a realtor.
There are a couple of big upsides to selling to an investor or selling on the traditional market.
1. Investors close quickly. Some investors can close in as little as 9 days. With a realtor, it could take several months to find a buyer. There is also no guarantee that the home will sell before the foreclosure.
2. You will get cash for your home. Investors deal with certain types of money lenders that make it possible for them to pay with cash. Making it possible to buy your home as quickly as they do.
3. You could keep your equity. If a home goes into foreclosure, any equity in the property is lost. If you have built up equity, you should consider selling your home if you can’t catch up on payments.
4. No appraisals or repairs needed. Another benefit of working with cash is that no appraisals are required to get a loan. Investors will not shy away from heavily damaged or outdated homes, They embrace the needed repairs. Investors will always buy AS-IS, making the selling process easy and efficient.
5. Peace of mind. This is something we specialize in at First Fidelity. We come prepared with the paperwork to make the process as easy as possible for you. We understand that foreclosure is a stressful time, and want to help in any way we can. We help homeowners with everything from helping you find a new home to cleaning out unwanted items from the property for you.
Owner financing
Owner financing is when an investor pays for the property in monthly installments. When you sell your home to an investor, usually they will give you a cash offer where you get all the money at once. In an owner financing situation, you would become something close to the lender. The buyer of the home would pay you a deposit and monthly fees. These would not be long term loans (usually they last about 6-12 months). When the home is sold after renovation, the buyer will pay you whatever amount is still owed.
The big advantage to owner financing is that the investor will be able to offer you more money for your home. The interest rates that investors pay on a property can be as high as 12%. By using the existing mortgage, they can go from 12% all the way down to 3-4% interest. This will decrease their monthly costs for the home, which means that they can put more money in the your pocket.
You should make sure that if you use this method, you are working with a trustworthy investor. Ask plenty of questions about how payments will be made. Most investors will use a third party like a title company. Any paperwork or money will be given to the title company to distribute. In the case of owner financing, the investor could put a larger sum into the account. Then, the title company would use the amount to make the monthly payments to the homeowner and bank.
Would You Like to Learn More?
Foreclosure is a difficult time, but there are plenty of options available to you.
The team at First Fidelity is available to talk to you and answer any additional questions you might have.