How to stop foreclosure: Understanding your options

Homeownership offers us stability and security. However, unexpected financial hardships can sometimes jeopardize our ability to keep the home we've grown to love. Here are effective options to consider to help you avoid foreclosure and protect your home.

Michelle Jackson
June 27, 2023

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Most people dream of owning their own home. From the thrilling search for the perfect home to the unforgettable feeling of finally finding your dream home. Homeownership offers us stability, wealth, and the chance to make memories with loved ones. 

However, unexpected financial hardships can sometimes threaten this dream and jeopardize our ability to keep the home we've grown to love. If you're at risk of losing your home, this article will help you to understand your options and navigate how to stop foreclosure. 

What is foreclosure?

Homeowners may lose access to their homes if their mortgage lender decides to close on their home loan. This happens through a process called foreclosure. Depending on the lender, a homeowner who has missed mortgage payments will find themselves notified that their lender has given notice that they are recalling ownership of the home.  

Definition of foreclosure-In layman’s terms, foreclosure is the process that allows a lender to take back ownership of a property whose loan they’ve issued in good faith. 

There are several steps within an active foreclosure proceeding. While the specific details vary from state to state, most homeowners can expect: 

  • Delinquency notification- A lender will contact the homeowner once a loan has missed the payment grace period. It's an opportunity to discuss the situation and how borrowers can get their loans back into good financial standing to avoid foreclosure. 
  •  Default- The mortgage loan is usually several months in arrears when a default filing is made. 

If the homeowner can't pay their debts, a lender will move to execute the sale of the property. The lender wants to recoup their losses by selling the property at this stage. 

Alternatively, if a homeowner can make good on their debts, they'll receive reinstatement. A mortgage reinstatement occurs once a homeowner is back in good standing with their loan. Once they've caught up with their outstanding payments and additional fees, their financial institution will note on their file that they've met the stated terms of their loan—ending foreclosure. 

How to stop foreclosure

Fortunately, there are steps that can be taken to avoid foreclosure. The easiest way to understand what is happening with the foreclosure process is to contact your lender. Once you’ve communicated with your lender, it’s likely that you’ll be advised that the first step to end the proceedings is to catch up on all missed payments and any additional fees that were accrued while the account was in arrears.

If you’re unable to pay off what’s owed, there are still options you can explore to avoid foreclosure. For example, a short sale can stop foreclosure but results in loss of ownership of the home. On the other hand, solutions like leveraging home equity allow you to pay off the balance and retain ownership.

Understanding your choices can help you navigate the intricate and emotionally challenging process. Here are eight ways to escape foreclosure:

Talk with your lender

There are a number of ways that a homeowner can work with their lender to resolve the issue and make their way back into good standing with their loan. A lender may be willing to offer:

  • A mortgage repayment plan: Qualified homeowners can work with their financial institution on a repayment plan that allows them to catch up on missed payments. 
  • A loan modification: Borrowers may request a change in their loan terms to modify the original loan. A loan modification could include changing the duration of the loan or changing a variable rate to a fixed rate. It’s important to note that the changes in a loan modification agreement will permanently change the terms of your mortgage. 

Enter forbearance 

Forbearance allows homeowners to pause regular monthly payments for a designated period to remain in good standing with their home loan. In addition to preventing foreclosure, it removes the immediate financial pressure one may feel. Before starting this process, it’s important to note that each financial institution has different factors for eligibility and may require proof of financial distress. Ultimately, it’s always important to communicate with your lender to learn your options. 

Short refinance your mortgage

The process of a short refinance allows homeowners to modify their existing loan and reduce the outstanding balance they owe. The loan amount is generally less than the existing balance, and the lender will occasionally forgive the difference. Why would a lender choose to do this? Short refinances can be an attractive solution to lenders as it saves them on the cost of foreclosure. 

This type of financial product can help a homeowner avoid foreclosure, lower monthly mortgage-related expenses, and allow them to restructure their mortgage in such a way as to address their current financial reality.

Refinance with a hard money loan

Hard money loans are a unique approach to refinancing —  they’re handled outside of traditional financial institutions and use a private lender. The loan is typically based on the value of your property, not your creditworthiness — which does make the interest rates much higher than other standard products. 

One thing to be aware of when considering a hard money loan is that the lender may have stricter requirements to qualify for the loan. Hard money loans also tend to be more expensive due to higher interest rates associated with the loan. 

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Take out a Reverse mortgage

You may have wondered how exactly a reverse mortgage works. With a reverse mortgage, lenders give you money — converting your hard-earned equity into monthly payments, a lump sum amount, or a revolving line of credit. 

The product has relatively strict requirements. To be eligible, you must meet the following criteria:

  • Homeowners can’t owe any federal debts
  • Must be at least 62 years or older
  • The property must be the primary residence
  • Must own 50% equity in the home 
  • The home can’t be a mobile home or a manufactured home
  • Borrowers must have the financial means to keep up with repairs, homeowners insurance, and property taxes

Reverse mortgages are paid back in one lump sum, usually from the sale of the home. However, homeowners can pay back a reverse mortgage in a number of ways. There are various pros and cons to using a reverse mortgage, so it’s important to explore this option carefully. 

Leverage equity with a Home Equity Investment

A Home Equity Investment (HEI) is an arrangement between homeowners and investors that empower homeowners to unlock their equity in exchange for a portion of their home’s future appreciation. With the funds from a Home Equity Investment, homeowners can get current on their mortgage and any other financial obligations. HEIs typically have more flexible requirements and terms. 

With Point, there are no income requirements or need for perfect credit — and no monthly payments ever. 

Derrick and Regina B. worked with Point to regain good financial standing and find debt relief.  Derrick was diagnosed with brain tumors that left him unable to work. He was forced to take on medical and credit card debt, ultimately leaving him and Regina unable to meet their mortgage payments.The emotional and physical stress left the couple exploring their financial options. Point worked with Derrick and Regina to find a solution that allowed them to take care of their immediate financial needs, catch up on their bills, and keep their home for years to come. "Point was Godsent. We were underwater."

Opt for a deed in lieu of foreclosure

Homeowners can also decide to contact their lender for the opportunity to break free of the property and the debt tied to it. A deed in lieu of foreclosure allows homeowners to enter into an arrangement that relinquishes ownership of their real estate property to the lender to avoid foreclosure. In turn, homeowners are no longer liable for any amount remaining on the balance. Following this course of action usually requires connecting with a U.S. Department of Housing and Urban Development (HUD) approved housing counseling agency. 

Sell your home

Consider moving forward with a short sale. While not an ideal outcome, a short sale allows the homeowner to sell their home at less than the home’s current market price. A short sale preemptively ends the foreclosure process once the home is sold.  

Frequently Asked Questions

What if my house is pre-foreclosure?

If your house is in pre-foreclosure, your lender has initiated the foreclosure process but hasn't completed it yet. This stage allows you to take action and potentially avoid foreclosure. The concern that needs to be addressed at this stage is the missed payments and fees. It’s best to contact your lender, who can guide you on getting your mortgage back into good standing.

How long does foreclosure take?

The foreclosure process varies depending on factors ranging from the financial institution’s internal processes and rules and regulations based on the state that the foreclosure action is being taken. Typically, homeowners can expect foreclosure to take several months to over a year to complete

Is bankruptcy a good way to prevent foreclosure?

Bankruptcy can help you avoid foreclosure and keep your home. However, based on bankruptcy's impact on your finances, it's best to consider this a last option. Instead, homeowners should explore alternatives to bankruptcy and speak with a financial advisor before filing for it. Bankruptcy can have devasting long-term consequences and is a temporary band-aid to financial problems.

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Final Thoughts

Financial hardship shouldn’t impact your ability to remain in the home you love. When facing foreclosure, it's important to remember there is hope. You can navigate this challenging obstacle by taking control of your situation and exploring your options. 

If keeping your home is your priority, connect with one of our specialists today. Point’s Home Equity Investment (HEI) allows homeowners to tap into their equity to get their finances back on track. 

Frequently Asked Questions

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