Can I Stop the Foreclosure Process?
In California, there is a robust nonjudicial foreclosure process which helps lenders and borrowers navigate foreclosure without lengthy, complicated legal fees and processes. In California, there are basically three ways to stop the foreclosure process: negotiating with your lender, making a big enough mortgage payment to clear the default, and filing for bankruptcy.
In this post, we’ll discuss the three main foreclosure avoidance tactics that you have available to see if any of them are right for your situation. Finally, we’ll discuss a few extra techniques that you might be able to use to get out of foreclosure.
Negotiating with the Lender
The first thing that starts the foreclosure ball rolling is a missed payment on your mortgage. A single missed payment, or a failure to make an entire payment, can start the beginning of the foreclosure process. Many banks will send you a reminder and charge a fee before starting the foreclosure process, but it can be technically started as soon as you miss a payment.
Most lending institutions will give you a few months before proceeding. During this time, you can clear the potential default on your loan by bringing the balance up to date.
In California, a lender must alert you to the fact that you are in default and that they are going to proceed with a notice of default. During this time, you may find some information about your options for clearing default. Some lenders are willing to work with you during the foreclosure process, especially if your lack of payments is due to clear, extenuating circumstances that were unforeseen or have been out of your control. There’s no harm in negotiating! Many lenders will listen and work with you.
Clearing the Default
Additionally, you don’t need your lender to negotiate with you. You’ll probably have nearly 200 days between the first missed payment and the final trustee sale that gives your title deed to someone else. If you are able to come up with all the money for insurance, taxes, interest, and fees to pay off the mortgage and all additional payments—congratulations, you’ve cleared the default and your home is back on track. During this time, you don’t need your lenders help. You can make the payments on your own and the foreclosure process has to cease.
Filing for Bankruptcy
If you cannot negotiate with your lender to make things work, and you cannot scramble up enough cash to make a lump sum payment on the loan, you can consider filing bankruptcy. Obviously, consumer bankruptcy has a number of unintended consequences as well. But for some homeowners who are in default, it’s the only way to avoid losing the house.
When you file for bankruptcy in California, you put an “automatic stay” on the house, which stops any collection or foreclosure. Banks can’t touch your home. You’ll go through the bankruptcy process, and the foreclosure process and timeline must automatically cease.
Bankruptcy plan payments allow you to possibly save your mortgage and home, because it gets the courts involved. You can enter the bankruptcy filings at any point before the auction is made on your house.
Other Techniques to Avoid Foreclosure
Refinancing the Loan
It may sound counter-intuitive, but you might actually be able to convince another financial institution to refinance your mortgage so that you get lower payments which can be made. To be honest, this will be easiest to do before you begin the foreclosure process. If you’ve missed a payment, many institutions won’t even look at your home loan. But smaller financial institutions might be willing to work with you to refinance, especially if you’ve got strong credit, a good history of making payments, and a great reason for missing the payments that you’ve missed.
Deed In Lieu of Foreclosure
If foreclosure feels inevitable and you don’t want the foreclosure to go up on your credit history—which you definitely don’t—then a deed in lieu of foreclosure (DIL) might be your best option. You basically give the home back to the lender and cancel the foreclosure process.
It’s risky, but if you can get a reverse mortgage you can convert the equity built up in your home into extra cash on hand to repay the loan. You’ll have to pay the reverse mortgage when the home is transferred, or when it is no longer used as the primary residence for the homeowner.
In California, short sales must be overseen by a real estate agent. By making a short sale on the house, you might be able to recover some of your investment with more than enough money to pay off the remainder of the mortgage. You’ll save your credit score and hopefully have some cash on hand to finance a new home.