Falling behind on your mortgage can be frightening, especially when you receive a Notice of Default from your lender. The good news is there are steps you can take to save your Irvine home, even right up to the foreclosure sale. Of course, the sooner you act, the better. Here are the best strategies to prevent or stop foreclosure.
Modify the Loan
The best course of action is contacting your lender as soon as you are having difficulty making your payments. In California, lenders are restricted from doing loan modifications when the foreclosure process has started. Most lenders would prefer to compromise and help you get back on track with your loan payments rather than begin the expensive foreclosure process. Depending on your lender and your financial situation, you may qualify for an interest rate reduction, forbearance (temporary reduction of payments), principal deferral, a repayment plan, or a combination of these options.
File for Bankruptcy
If you cannot get approved for a loan modification or it’s too late, bankruptcy is an option. You can even stop a foreclosure sale that is just days away by filing for bankruptcy protection. When you file, the automatic stay goes into effect immediately, which prohibits almost all types of collection actions against you, including foreclosure. Your lender can file a motion for relief from the automatic stay, but it may give you 1-2 months to explore alternatives.
There are two types of bankruptcy to consider: Chapter 7 and Chapter 13. With Chapter 13, you can restructure your debts under a three to five-year repayment plan. Over the course of your plan, you will repay debts in full or partially. You can stop foreclosure, remain in your home, and repay delinquent loan payments over time. A Chapter 7 is different. Also known as liquidation bankruptcy, this option isn’t considered a good way to save a house, but it can delay foreclosure and give you time to live in your home without mortgage payments.
File a Lawsuit
In California, lenders can use a nonjudicial process to foreclose outside the court system or a judicial system. Nonjudicial is most common, and it may give you the ability to delay or halt foreclosure by filing a lawsuit against your lender. To win a lawsuit, you must show that a foreclosure should not occur because your lender can’t prove it owns the promissory note on the home, violated the Homeowner Bill of Rights, did not complete all legally required steps, or made some other serious mistake. If you can’t win your case, you will only delay the process. This option can also be very expensive.
The above options are usually best for preventing a foreclosure and saving a home. You may have other options, although these won’t necessarily save your home in the process.
- Assumption or lease option – In some cases, a lender can change the terms of a mortgage and allow a new buyer to assume the loan. A lease-option can allow a buyer to essentially become your tenant, in which case you still own the home until the buyer saves enough for a down payment, sells his or her other home, or improves his or her credit.
- Deed in lieu – A deed in lieu of foreclosure means you sign the deed back to the bank voluntarily, although it damages your credit just as much as a foreclosure.
- Short sale – This option can damage your credit like a foreclosure, but you may qualify for a new home loan sooner. A short sale means the lender is allowing you to sell your home for less than you owe and will release ownership to the buyer, but you may still be on the hook for the remaining balance.
The best way to prevent a foreclosure is to plan properly when first searching for a home and not purchasing more home than you can afford. From Northpark to Laguna Altura, Irvine real estate is moving quickly no matter what the price point. Get in touch with the trusted agents at OC Residential to find an affordable home that best suits your lifestyle. Call 714-454-6304 today to start your search.