What are my options when facing foreclosure?
Lately, life has been a challenge for just about everybody. Life might be coming at you from all sides, with job loss, health issues, divorce, or death in the family. Catastrophic events have a bad habit of snowballing, and unfortunately for many people, that giant snowball stops with a home foreclosure. As if the loss that caused you to miss your house payments weren’t enough, a foreclosure on your mortgage means you lose your house—at the worst possible time.
If there is any good news about your options when facing foreclosure, it’s that the process takes several months to a year, and in California in particular, the laws governing foreclosure are as consumer-friendly as any state in the country.
California Foreclosure Laws
California home buyers usually get a mortgage to finance the cost of a house. The mortgage includes a power of sale clause, which allows the lender to basically take over the house if you default on the payments.
What’s the good news here? Well, the state can’t take any action against you until you miss four payments, after which the house goes into default. Then there’s more bad news—the state takes your house and sells it. It does take months from the first Notice of Default the lender sends, until the sale of the house is final and you have to move out.
Although filing all the paperwork and working through the court system does take months, it’s like a slow moving freight train if you’re going through it. But in California, you have until five days before the foreclosure sale to cure the default—bring the payments current—and stop the sale.
The conundrum of a foreclosure
The financial distress that leads to a foreclosure doesn’t happen in a vacuum, so it’s critical that if you aren’t able to make your house payments, you pay all your other bills as best you can.
This way, you can keep your credit score from completely falling in the tank, which will make recovering from your distress even more difficult. Some experts recommend filing bankruptcy, but that will damage your credit future at least as much as a foreclosure.
Options when facing foreclosure
You do have options to avoid the actual foreclosure of your home, beginning with working with your lender to restructure your loan.
Loan modification
The reality is that your lender does not want to foreclose on your home. For one thing, it’s expensive—they will tack on legal fees to the balance you owe, but chances are good that they will wind up losing money on your house.
A modification either changes the term of your loan, like reducing the principal, extending it to 40 years, lowers the interest rate, or sometimes both.
The downside to a modification is that if the bank reduces your principal, they have to let the IRS know, and the reduced amount counts as income on your taxes.
Either way, the idea is to make the payments more manageable. The problem with this is that although banks do not like to foreclose, they aren’t eager to modify loans, either.
Refinancing
If you see trouble on the horizon, you might be able to get ahead of it and refinance your house before you miss a payment. Interest rates are low, and if you refinance for a lower payment before your credit score takes a hit, you can pay off the higher payment loan.
Repayment plan
If a loan modification isn’t going to work, ask your lender for a short-term repayment plan. This works if you can make your payments now but are struggling to catch up because of late fees and past due amounts.
You’ll still have to make regular payments, but this grace period can help you get everything caught up.
Forbearance
Some lenders will agree to a forbearance, when the lender stops foreclosure proceedings for a period of time, even though they aren’t getting regular payments.
The late balance is tacked on to the end of the loan, extending the payment period for as many months as payments stopped.
Deed in lieu or short sale
These options seem like a quick solution, but they are actually worse than foreclosure. With a short sale, you agree to sell the house for less than you owe the bank, and they may still demand you pay the shortfall, a deficiency judgement. Your credit score still suffers as much as it would if the foreclosure had happened.
A deed-in-lieu instead of a foreclosure lets you avoid all the stress and hassle of the foreclosure, since you simply surrender the rights to the house to the lender.
There is no guarantee that you would not owe any shortfall or fees after the lender sells the house, and your credit score will still take a huge hit.
Sell for cash
Before you exhaust yourself trying to figure out a solution, consider whether you even should try to stay in your home. If you can no longer make the payments, maybe the best outcome is to sell the house and move on.
Traditional selling strategies may not work for you if you’re trying to avoid foreclosure; real estate agents will want you to spend hundreds of dollars and weeks getting the house ready for the market—money and time you may not have.
Here’s a better option when facing foreclosure—sell for cash.
Rethink your selling strategy
Offercity has a whole new way to sell houses quickly and easily. Rather than waste time and energy chasing a buyer who comes through in time, let Offercity sell your house for you. If you like to know how much it costs to sell your home we have a post on that too.
Our streamlined process takes you from initial consultation to close as soon as a couple of weeks. Best of all, we let potential buyers bid on your as-is house with a guaranteed cash offer —so you know you’re getting the best price, a no-hassle close, and can start fresh with a new house. Contact us today for more information on your options when facing foreclosure and to sell your house for cash.
