Often people may declare themselves bankrupt to get rid of their debts. Foreclosure is a process where a lender tries to repossess a loan balance from a lender that is no longer repaying the loan, forcing the lender to sell the asset used as the loan’s security. When a homeowner fails to repay their mortgage for some time, the entity that lent that money or the bank repossesses the house. If you ever find yourself in such a situation, make sure you find an experienced bankruptcy attorney. Los Angeles Bankruptcy Attorney understands bankruptcy laws and regulations and will guide you through the process of guarding your home against foreclosure.
The Home Foreclosure Process
The process of foreclosure varies from state to state. The difference comes in the type of legal documents utilized when passing on real estate. The judicial foreclosure process is used in states that use mortgages whereas the non-judicial process is used in states that use deeds of trust when transferring real estate.
In a judicial foreclosure process, the lender or bank must go through the court while a non-judicial foreclosure does not require court proceedings. In the latter process, the lender or bank sends a notice of sale and a notice of default to the homeowner and files them with the county.
The following process is followed during a home foreclosure in Los Angeles:
Step 1. The Homeowner Fails to Make Payments
The process starts when a homeowner defaults to make mortgage payments on time. However, missing a single or handful of payments doesn’t make you suitable for the foreclosure process. Most lenders try to provide ways for the borrower to return to the right path. Banks may allow reinstatement, where the borrower is allowed to make a single-lump sum payment to cover for the missed payments or forbearance. In forbearance, the amount owed is spread out to reduce the financial burden to the borrower. Most lenders will try as much as possible to avoid the foreclosure process as it’s very expensive not forgetting the hassle involved. However, if the homeowner is facing a permanent financial problem, then the foreclosure process will proceed and they will eventually lose their home.
Step 2. The Lender Sends a Notice of Default to the Homeowner
When you’ve exhausted all avenues of getting back on track financially, then you’ll have no other option than a foreclosure after falling back on your mortgage payments. The lender will send you your initial notice of default. The notice may be sent between 30 - 60 days after the deadline for payment has passed. The notice may show how much you owe the lender and a deadline in which the balance should be paid to avoid the foreclosure process. You might receive one or several notices. The notice may be accompanied by a letter from an attorney stating that they’ll be assisting with the foreclosure process.
If your financial problem is only temporary, you might prevent your home against foreclosure. In most cases, lenders try as much as possible to avoid the process and keep the homeowner in the house. After receiving the notice, you can contact the lenders and explain your case.
Step 3. The Lender and Homeowner Tries to Find a Solution
If the homeowner is facing a temporary financial crisis, they need to get in touch with the borrower and explain their situation. They will then agree on a plan that will ensure the missed payments are made either by paying a lump sum amount or spreading the money over a period of time. If the financial problem is permanent, then the lender will proceed with the foreclosure process.
Step 4. The Lender Begins the Foreclosure Process
If the homeowner fails to repay the loan, the lender will proceed to file the paperwork necessary for the foreclosure of the home. The lender will proceed with the process without going to court. In the deed of trust, there is a clause known as a power of sale that allows the administrator to dispose of the property without going to court.
Step 5. The Lender Foreclosures and Sells the Home
At this point, if the homeowner is still unable to repay the loan amount, the lender will move ahead and foreclose the home. Foreclosure is where the lender takes possession of a mortgaged property. An auction or foreclosure sale will be held. The lender will price the home below its current market price to get it off their hands very quickly.
Reasons why Homeowners go into Foreclosure
While a few homeowners choose to go into foreclosure deliberately, there are a number of reasons that make others stop making payments for their mortgages. Some of the reasons include:
- Excess debt and accumulating bills
- Quitting your job, getting laid off, or getting fired
- Getting a job transfer to a different state
- Incapability to continue working because of medical conditions
- A divorce or a dispute with the home co-owner
- Unable to afford maintenance fees
Options to Avoid Foreclosure
If you cannot afford to make monthly mortgage payments, the following options can be used to avoid foreclosure:
Refinancing - You require a definite amount of equity to be able to refinance your home. If the interest rate of the mortgage is not affordable for you, you may refinance into a lower interest rate, therefore, reducing your monthly payments.
Mortgage modification - The terms of the loan or the rate of interest will be modified to minimize the payments. The principal amount owed is rarely modified. Sometimes the loan is permanently restructured while other times the change is temporary. The main aim is to make the struggling homeowner be able to afford to pay back the loan.
Sell the home - This is an option if you fall back on mortgage payments and you are not able to catch up. In most cases, the lender will allow homeowners to sell the house at a price that is lower than their arrears to the mortgage company for them to sell the house faster. This aims at avoiding the foreclosure process.
Defenses for Foreclosure for the Homeowner
If your lender insists on continuing with the home foreclosure process, you may use the following legal defenses to stop this process, thereby guarding your home against foreclosure.
Right of redemption - The homeowner might recover their home from a sale by paying a portion of the full mortgage amount within a certain time period.
The absence of standing - This defense can be used if the accused is of the opinion that the plaintiff does not legally own the mortgage.
Loan modification - The lender has to ascertain that a homeowner meets the requirements for a loan modification before foreclosing the home. They must write to the homeowner informing them of any loan modification available or other options which might assist the homeowner to retain their home. In case there is a loan modification application that is pending, the mortgage company can’t foreclose on the property as the matter is being settled. In case the foreclosure process has started, it has to stop as the modification or any other alternative is unresolved.
Lack of notice - State law prescribes the type of notice that must be issued to homeowners facing foreclosure. The law dictates that defined forms should be sent to homeowners. It further dictates that particular provisions are contained in notice documents. Technicalities like the plaintiff excluding provisions on colored paper or in bold give grounds for a court ruling that the requirements were not followed strictly.
Other defenses include disputing how the mortgage was obtained or the mortgage terms.
Mistakes Made in Foreclosures
Below are the common mistakes that people make during home foreclosures. Avoiding these mistakes might give you leeway to challenging the process or even avoid the home foreclosure as early as possible.
- Avoiding calls and letters from the bank - Foreclosure is a lengthy process and during the time, the lender may try to reach out to you. Ignoring or avoiding their calls is the worst thing to do and will not make the problem go away. In fact, this may make you miss the opportunity to save your house, further causing the lender to proceed with the foreclosure process against your home;
- Not considering all options - Loan restructuring is one option to avoid foreclosure. However, when push comes to shove, declaring yourself bankrupt can stop the foreclosure process. Getting the bankruptcy court to modify your loan with the aim of meeting your commitment under the mortgage and other debts may enable you to keep your home;
- Damaging the property - Some homeowners become frustrated after learning that their homes will be foreclosed and they knowingly cause damage to the house. Getting frustrated is understandable; however, it is not an appropriate thing to damage the house. Tearing walls down, stripping the fixtures or pipes, and pouring cement down the drain can have serious legal repercussions if the bank decides to report the vandalism. It can result in paying more money after the foreclosure;
- Failure to save money - Immediately you find out that a foreclosure is impending, you should begin saving the money you would have used to pay for the mortgage. Since it might not be easy to buy or rent a house owing to the negative impact foreclosure has on your credit, you might use the money you’ve saved to find a new house;
- Not trying to restructure or negotiate - Most homeowners think that once they fall back on their mortgage payments, foreclosure is inevitable. Lenders usually try to avoid foreclosure because once they get hold of the title, the burden of maintaining the property, property taxes or even loss of mortgage payments lies with them. Consequently, with available funds from a bailout, you can restructure your loan, delay or avoid foreclosure and redeem your home;
- Neglecting the property - Most often, when homeowners start falling behind with their mortgage payments or anticipate a foreclosure, they stop caring for the property. This is a mistake as it makes it difficult for a short sale of the property, difficult for the bank to sell the property and might lead to the involvement of condominium or homeowners association for violations. You definitely would not want to spend much money repairing a house that is being foreclosed, neither would you want the house to fall apart completely, mostly since there are chances you can negotiate a deal with the bank or stop the process;
- Not considering a short sale - A short sale is advantageous to you and the bank and can be a way out of foreclosure. You may find a buyer who’s willing to purchase your house for a value less than the current market price. If the bank agrees to the offer, they accept the money as settlement for the debt you owe them. This may have a negative impact on your credit but it is far much better than a foreclosure;
- Not understanding the legal implications of foreclosure - Most homeowners believe that once a foreclosure takes place, the situation is over. The bank may come after you to get the difference if they sell the house for a value less than what you owe or if they can’t find a purchaser to pay what you owe;
- Avoiding the reality - When you start seeing signs of foreclosure, you should start preparing yourself. You need to get a new place to stay, start packing and find help moving your stuff. The sooner you start facing reality, the sooner you begin preparing so you don’t find yourself without a place to stay when you get evicted from your house;
- Not finding help - Finding an attorney that specializes in foreclosures can help you delay the process for some time, stop it, or even negotiate with the lender to refrain from additional legal problems. Seeking help will ensure you avoid owing money to the bank even after losing your house.
Find a Bankruptcy Attorney Near Me
Mortgage foreclosure can be a long process for most homeowners. Understanding the process and getting the much-needed assistance will save you from any problem faced during the process. Los Angeles Bankruptcy Attorney will advise you on the best options to ensure you keep your home. Call us today at 424-285-5525 to get our expert help.
