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One of the most stressful things you can go through as a homeowner is losing your beloved abode due to unpaid bills. Particularly during the coronavirus (COVID-19) pandemic, millions of Americans have faced financial hardship because of record job losses, causing them to seek unemployment benefits. Experts estimate that up to 40 million people are at risk of losing their homes without some sort of federal intervention and at least 4 million people are on forbearance, meaning mortgage payments are deferred.
While there are some avenues to get federal aid, there are other ways to pay down your debt, improve your credit, and stave off your home’s foreclosure.
What is Foreclosure?
Foreclosure is a legal process that allows a lending institution to seize property assets if a loan, property taxes, or homeowners association fees are not being paid back. Oftentimes loans such as mortgages are secured against an asset (eg. your home), so that if you fail to pay the loan on time, the lender can take your property as collateral. Typically they will sell that property to make back the money owed from that owner.
You’ve probably heard the term, at least, during the 2008 housing crisis, during which time an estimated 3.8 million home foreclosures occurred.
How Foreclosure Works
- You miss payments: While getting a mortgage is pretty much impossible unless you’re financially stable enough to do so, sometimes life and the economy take unexpected turns. Whether it’s losing your job or taking on unexpected debt, missing your mortgage payments is the first step toward a home foreclosure. That being said, the foreclosure process is often expensive for the lender as well, so they will typically do what they can to avoid going down that path by restructuring the loan, deferring payments, etc.
- Continued missed payments: If the homeowner continues to miss payments, after 3-6 months the lender can file a lawsuit, called a Notice of Default, to the local authorities. This is then sent to the homeowner as a warning that the lender is preparing to take legal action.
- Pre-foreclosure: After the homeowner receives the notification that they are at risk of legal action, they have around 90 days to take action by paying the unpaid bills, selling the property, or signing the home’s deed to the lender. If the owner tries to sell the home, this is called a short sale because the value they receive from the home often falls short of what is owed. In order to short sell the home, the lender must first approve. Taking the loss in property value is often more convenient for the lender because they don’t have to take the cost and process of a foreclosure, while the homeowner takes a far lesser blow to their credit score.
- Auction: Once foreclosure is in full swing, the home is then auctioned off to the public by the lender, typically at a local courthouse or community center. The starting bid will be equal to whatever the homeowner had owed. There is, in some states, an option for the homeowner to buy back their home at auction, so long as they also pay the interest and costs the lender paid during the foreclosure process in addition to the bidding price. If the home is sold at auction, the previous homeowner then must move out.
- Real estate owned (REO) property: If the lender decides not to auction the home, it then becomes a real estate-owned property, meaning the bank/lender is the sole owner of that property. They will try to offload the property because being the sole owner means they must now pay property taxes.
So, When is it Too Late to Stop Foreclosure on a Home?
The foreclosure process is long, drawn out, and expensive for all parties involved. Nobody wants to be part of it; not even the bank. There are a few opportunities, however, to stop foreclosure as you may have gleaned from the process in general:
- Work with your lender before it becomes problematic: As stated above, not even lenders want to foreclose on your home. Before they begin that painstaking process, they’ll do what they can to work with you — deferring payments, restructuring the loan, etc.
- File for bankruptcy: This is sort of the nuclear option because of all the negative long-term financial consequences that come with it: damaged credit, further debt, and attorney fees. However, timing is key and the efficacy of this option is entirely dependent on your personal situation. Be sure to consult a bankruptcy lawyer before you pull the trigger on this option.
- Pre-foreclosure status: If you receive public notice that your mortgage broker is taking legal action to seize your assets, you have 90 days to correct the situation. This is often easier said than done, though — if you haven’t had the money to pay your mortgage for months at a time, you probably won’t have enough to cover your debt.
- Buying at auction: This doesn’t stop the foreclosure process, but may allow you to recover from it if you can afford to buy it back. But again, you’re probably in this situation because you couldn’t pay for it in the first place.
Stop Your Home’s Foreclosure With SKYDAN Equity Partners
SKYDAN’s home buyback program is designed to help struggling homeowners by giving them a large lump sum of cash, with which they pay down their debt — property taxes, mortgage payments, medical debt, college, or anything else — BEFORE you default on your loans. Here’s how it works:
We buy your home and in return give you a large sum of cash. You then lease the home back from us for up to 24 months with deferred rent payments. This means that while you’re leasing your home back from us, there are no monthly payments, no interest paid, and no added debt.
At the end of the 24-month period, you have two options:
- Purchase the home back (original price + deferred rent)
OR - Sell the property, keeping all additional equity
We don’t care about your credit score, employment history or debt-to-income ratio. We are here to help you break the cycle of debt, not add to it like traditional home loans do. Our home buyback program is an attractive option for homeowners being threatened with foreclosure. The only thing you need in order to qualify is having enough equity in your home.