If you’ve fallen behind on mortgage payments and received a foreclosure notice (or if this is a possible eventuality), you must engage your lender as soon as possible. We’ve compiled the ultimate guide on how to avoid foreclosure in Chicago, so read on to learn how to prevent significant damage to your credit score. What Is Foreclosure?Foreclosure happens when a borrower (the homeowner) doesn’t pay their mortgage payments, and the lender (usually the bank) has to take back and sell the home. Sometimes, the house may not be worth enough to pay off what the borrower owes on their loan, and the lender pursues a deficiency judgment, meaning that the borrower owes money in addition to losing their dwelling. Take ActionForeclosure isn’t something to ignore, and it’s not something that goes away if you don’t address it. Take steps to get your funding in check and prioritize housing costs (after food and healthcare). Any unnecessary spending, like on streaming services, gym membership, or other non-essential items should stop immediately. Focus all of your extra cash on your mortgage payments and do whatever you can to avoid getting further behind. Once you know there’s a problem, contact your lender immediately. Repossessing a home is a hassle and, truthfully, they simply want to get paid. They’ll have several options available to borrowers to work through financial troubles. Pay Off the Loan BalanceBefore your home is considered “in the foreclosure process,” there is a pre-foreclosure phase. If you can make up enough money to pay off your loan balance, you can convince your lender to stop the process and avoid foreclosure altogether. This requires you to pay off all the monthly payments you’ve missed and while it can be tricky, this is the best way to eliminate the risk of losing your home. Speak With a Housing CounselorYou may wish to seek professional help in a case such as this. If so, reach out to the U.S. Department of Housing and Urban Development, or the HUD. They have housing counselors who can help you better understand your options for your specific situation and may be able to help negotiate with your lender on your behalf. Pay Off ArrearsYou may have heard the term “paid in arrears” before— this refers to payments made after a due date has lapsed. When you miss your monthly mortgage payments, an excellent way to show the lender that you’re making progress on your expenses is to pay off past-due payments. As we mentioned earlier, it’s a lot of work to foreclose your home, so lenders can be more lenient if they see you making an effort to pay what you owe. Create a Repayment PlanFor homeowners who are experiencing a temporary monetary setback and know that they’ll be able to clear the situation up if given enough time, reach out to your lender and try to agree on a repayment plan. This option allows you to pay off your loan balance at a reasonable pace and helps you recover from any complications. Modify Your LoanIf something has come up that makes it so you can no longer afford your monthly mortgage payment, contact your lender and talk about modifying the terms of your loan. This could help reduce monthly payments or change interest rates due to your new financial situation. Refinance Your MortgageRefinancing your mortgage involves paying off your existing mortgage and taking on a new mortgage with more favorable terms. This can result in lower interest rates, but your original loan balance will not change (nor will your collateral). Sign a Deed in LieuA deed in lieu is when the borrower agrees to sign the deed and title of the home over to the lender. This still has a negative effect on your credit score (like foreclosure) but means that the former homeowner is no longer required to repay the mortgage. However, this option is generally not accepted by banks. Many banks are apprehensive of deeds in lieu because they become obligated to pay off any second or third mortgages before carrying out the deed in lieu. Additionally, banks want to confirm that you’re genuinely under financial stress before accepting a deed in lieu, which requires your home to be on the market for several months without buyers. If foreclosure is looming, this may be a viable option for you, but know that it’s typically a last resort for lenders. Do a Short SaleA short sale involves finding someone to buy your home for less than what you owe on the mortgage. The lender receives the money from the sale and forgives the remainder of your mortgage. For this option to work, your lender must agree to it ahead of time. Keep in mind; this involves your lender agreeing to receive less money, so you’ll need to make a case as to why this is a good idea for them. The best way to go about this is to highlight how much time, trouble, and effort it is for your lender to find a qualified buyer. A short sale offers them guaranteed money and no risk associated with keeping your property on their books. File for BankruptcyFiling for bankruptcy is your last option when facing foreclosure—while it stops the foreclosure process in its tracks, bankruptcy has a significant impact on your credit score, and the ramifications could stay with you for years to come. Remember, filing for bankruptcy is like pressing “pause” on your loan repayment; it’s not a cancellation of your debt. While you wait for your bankruptcy case to be heard, lenders and creditors can’t collect their loan from you. After, however, your lender will require you to continue paying off your loan. Now that you’ve read our ultimate guide and you know how to avoid foreclosure in Chicago, we hope you understand that foreclosure, while a serious issue, isn’t a death sentence. If you need further assistance or wish to sell your house as-is in Joliet, reach out to us—we’re happy to help!
1 Comment
1/25/2022 03:31:17 pm
You made an interesting point when you talked about how it is important to engage with a lender as soon as possible if you are facing foreclosure. Before facing your lender, it seems like it would be a good idea to find a lawyer to work with. The lawyer is going to help you know what to say to the lender.
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AuthorEric Strung and Direct Property Buyer Team Archives
January 2024
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