It’s critical that homeowners understand all of the potential options available to avoid foreclosure. Additionally, it is equally important that homeowners understand the consequences that could arise if they fail to act and a foreclosure process begins. For the most part, foreclosures should be avoided at all costs. Foreclosures are a hassle, stressful, and embarrassing. Furthermore, a foreclosure could have long-lasting financial impacts to the homeowner.
Let’s talk about what exactly is a foreclosure. A foreclosure is the legal process where a lender or mortgage company takes back ownership of a property when the homeowner has failed to make regular payments, defaulted or violated terms of their mortgage loan agreement.
There are many potential consequences of a foreclosure – all of which the homeowner will want to avoid.
- Eviction: the homeowner will be removed from their home and lose any equity that may have existed
- Negative credit impact: the impact of a foreclosure could severely damage one’s credit, ability to get approved for new housing, ability to be approved for other types of credit and potentially even future employment opportunities.
- Deficiency judgment: if a home is foreclosed on and sold by the lender for an amount in which the proceeds from the sale do not cover the loan balance, the lender may file a deficiency judgment against the borrower in an attempt to recoup those losses
- Stress: overall a foreclosure is an incredibly stressful event that no one wants to endure
In Texas, the foreclosure process is typically non-judicial meaning the courts need not be involved. The lender may conduct the foreclosure without involving the courts. According to RealtyTrac, Texas has the fastest foreclosure processing period of all states. Generally, the first step is when the homeowner receives a notice from their lender requesting that the borrower pay the full default amount on the loan. Eventually, if the default amount is not brought back into good standing the lender will notify the borrower again stating that the loan has been accelerated (the full amount is due) and that sale has been scheduled to recover the full loan balance.
The lender posts a notice of sale with the county clerk 21 days prior to the auction/sale. In Texas, the homes are sold in an auction-type manner on the first Tuesday of every month to the highest bidder. The lender is also eligible to bid on the property.
How to Avoid Foreclosure:
There are many approaches by homeowners to avoid a foreclosure. Below are some common types and the potential consequences of each.
- Doing nothing: Many homeowners might feel stuck or helpless if faced with a foreclosure and choose to do nothing. However, this route could lead to all of the negative consequences referenced above: eviction, stress, negative impact on credit and potential deficiency judgment from the lender.
- Short Sale: A short sale is when a lender agrees to accept a sales price of a home that is less than what is owed on the home. As you might imagine, lenders are not in the business of losing money and getting a bank to accept a loss on a property that they could take back from the borrower is very tough to do. Short sales are difficult to achieve and take a lot of time and paperwork to attempt. Additionally, if some instances the affects of a short sale to a borrower’s credit is equal to or only slightly less than a complete foreclosure.
- Mortgage Release: (also known as a Deed in Lieu of Foreclosure) is when the borrower transfers the property back to owner of the mortgage in exchange for a release of the lien liability. The issue with this strategy is that lenders are not in the business of owning properties. Lenders and banks make money off interest not managing properties. For these reasons, it is often hard to convince the lender to accept a mortgage release.
- Sell your home: Although selling your home might be a difficult decision to make, it might actually be the best option. If you’re in a position to sell, then you are able to avoid a foreclosure or a short sale. Additionally, you avoid all of the negative consequences that come along with a foreclosure of short sale. Below are just some of the benefits that a homeowner might take advantage of by selling to avoid a foreclosure or short sale.
- Avoid the harsh negative impact that a foreclosure or short sale has on your credit worthiness
- Avoid the potential for a deficiency judgment against you if the bank does not collect all necessary proceeds from the sale of your home
- Avoid the embarrassment, stress and hassle that a foreclosure has on you and your family
- Potentially attempt homeownership again more quickly. A foreclosure or short sale has a negative impact on your credit and may prevent you from homeownership for years. If you are able to avoid a foreclosure or short sale, this process might not take as long.
The key is to act fast. The longer the wait the more risk there is for something to go wrong. Give us a call today and let’s talk through potential solutions that fit you and your families needs. Remember, every situation is different and in some cases we can buy homes at full price – even if you owe more than the home is worth. It’s worth a phone call to find out your options. Give us a call at 972-584-9637 or fill out our simple customer information form by clicking here.
Note: We are not attorneys nor are we providing legal advice. We are simply providing options and potential alternatives to help individuals who might need to avoid foreclosure. Please consult an attorney for specific legal advice.