Avoiding Foreclosure
When you’re a homeowner, there are few words more worrying than “foreclosure”, yet it’s something that approximately 5% of Mainers will experience at some time according to ATTOM Data Solutions, a real estate data firm. Fortunately, if you find yourself falling behind in your mortgage payments, you have a few options for avoiding foreclosure and the accompanying credit and future home-buying implications.
Increase your cash flow - The easiest and most obvious solution to catching up on your mortgage payments is to increase your cash flow. Whether that means liquidating some assets (sell some stocks, sell some old clothes, whatever works!), starting a new side hustle, or renting out an extra bedroom, adding more cash to your wallet will allow you to play catch-up with your lender. If this is the route you’re going to take, it’s recommended that you speak with your lender to ensure they know what your plan is and don’t start or continue foreclosure proceedings.
Work with your mortgage lender - Speaking of your lender: while your instinct will likely be to avoid them at all costs, discussing your situation with your mortgage provider is a SUPER smart move. Not only could a conversation buy you more time, but you can talk through some tangible options that your lender offers. Such options may include:
A restructuring or refinancing of your loan: Your lender may be able to reduce your monthly payment by applying a better interest rate or extending the term of the loan. Alternatively, they may be able to refinance your loan altogether, which would pay off your current mortgage and set you off with a new, fresh loan. The feasibility of this is largely due to the current market and whether terms are favorable compared to when you initially purchased your home, but it’s definitely worth the conversation.
A repayment plan: If you can commit to repaying the missed payments within a certain amount of time, you lender may offer you a simple repayment plan. If you go this route, ensure that you meet your new obligations of the repayment - otherwise, the foreclosure process could kick back in.
A loan forbearance: Your financial institution may agree to putting your mortgage payments on a temporary hold. You’ll still owe those payments, but a forbearance will buy you some time by adding the delayed payments to the end of your loan term or by requiring repayment in a lump sum at an agreed upon time.
A deed-in-lieu: Rather than go through the foreclosure process, which requires both time and financial resources on your lender’s part, they may accept a deed-in-lieu of foreclosure, in which you would willingly sign your ownership rights over to the lender. This would still create a negative ding on your credit report, but likely less so than a foreclosure.
A short sale: A short sale may be necessary if you owe more money on the home than it is currently worth. Lenders don’t love short sale because they’re likely losing money, but it does benefit them in that they won’t need to take on the responsibility of ownership and consequently the sale of your property like they would in a foreclosure. A short sale process can be lengthy for both you and the buyer of your property, will negatively impact your credit, and your lender may even expect you to pay the difference in the sale price and your mortgage obligation, so this is an option you’ll want to research well.
File for bankruptcy - Once you file for bankruptcy, debt collection efforts are federally required to be paused, so it may be an appropriate option for you to buy yourself some time to repay your debt if your lender is otherwise unwilling to work with you, or if your other bills have also become too much to handle.
Sell your home - While you may not want to say goodbye to your home, proactively selling it before a foreclosure is finalized can save your credit and ensure you’re able to purchase another home as soon as you have the necessary funds saved up. Plus, unlike with a foreclosure, listing your home with an agent could actually put some cash back in your pocket. If you have some equity built up in the home (which many people do right now, given the favorable market as of late), a sale could not only pay off your current mortgage, but also provide you with a nest egg to get into a rental, pay off additional debt, or set it aside for a future home purchase.
The biggest takeaway I can share when it comes to foreclosure is DON’T WAIT to take action. While it can most definitely be intimidating, nerve-wracking, [insert all other negative feelings here], proactively dealing with the situation will always be your best bet. It’s also a great idea to speak with a professional that can help you navigate your situation, whether that’s a legal service like Pine Tree Legal Assistance, or a real estate agent like those of us at Breakwater Realty Group. Getting help will provide you with the confidence to move forward in a way that most benefits you and your future.
ABOUT THE AUTHOR:
Faith Irek, Sales Agent, REALTOR®, Breakwater Realty Group Co-Founder
Faith grew up on an equestrian farm outside of Portland, Maine and returned to the state after graduating from the University of New Hampshire with a Business degree. She brings over 17 years of high-level marketing and digital management experience to her real estate career and enjoys creating effective and creative promotional campaigns that support Maine homeowners in the sale of their property. Faith is equally as devoted to finding her buyer clients homes that they both adore and feel safe in, and is committed to a client-forward approach that leaves no stone unturned in pursuit of the best deal possible.
Faith resides in Falmouth with her family. She enjoys live music, kayaking, golf, and is learning to both refinish furniture and to not kill her houseplants (one of which is far easier than the other!). She will drop everything to pet a dog and will never pass up an opportunity to visit a county fair. She is the former Corporate Vice President of the Hugh O'Brian Youth Leadership Maine chapter and enjoys finding new opportunities to support her neighbors in need of a helping hand.
207.233.8177 // faith@breakwaterrealtygroup.com