Foreclosure means ‘immediately terminate’ in plain English. It is a process whereby a lender forces the sale of fixed property, in order to recover the outstanding balance owed. For this to be legal, the borrower must have ceased to service the debt as previously agreed. There are three types of foreclosure in the United States:
- Judicial Foreclosure whereby the courts oversee the sale of the property and the distribution of the proceeds (all states)
- Non-Judicial Foreclosure where a ‘power of sale clause’ is included in the original agreement (many states)
- Strict Foreclosure, whereby the lender gains title without a duty to sell (Connecticut, New Hampshire and Vermont)
This is not a good place for homeowners to find themselves. However, you may be able to avoid the inevitable if you take proactive steps.
Your Tower of Strength: Corporate Lenders Don’t Like Foreclosing
Financial service providers prefer to avoid foreclosing for three good reasons. In the first instance, this is bad for their brand if the media favor the borrower. Then secondly, foreclosures rob their legal advisors of time they could better spend in other ways. Thirdly, their business is lending, and making money by charging interest.
The 4 Important Steps to Fending off Foreclosures
- Watch for, and recognize the warning signs that you may be overextending financially. When you arranged the loan over your property, you were in good financial shape. Otherwise, your provider would not have lent you the money. What has changed? Are you earning less, or borrowing more? Take whatever steps you can to narrow the gap.
- Speak to your lender as soon as you recognize you may be heading for financial trouble, or are already in it. If you situation is temporary, the chances are you will find them flexible. They may allow you to lower your payments for a while, or even grant you a short payment holiday. If you are reasonable about things, you should find them reasonable too.
- Play open cards with your loan provider. Share your research with them about how you ended up in financial difficulty. Explain the countermeasures you have already taken to reduce discretionary spending. If you have changed your mobile and electricity accounts to pay-as-you-go, tell them. If you have revised your monthly budget, they will be pleased to know.
- Make a specific suggestion how you propose to catch up on your payments. You could propose temporarily extending the loan period so your monthly is lower. Make sure your lender knows you understand that your total interest will be more. They will be looking for signs that you are being practical about your situation. Remember, they want to keep you as a customer.
Finally, make sure you stick to your side of the agreement with your lender. Because, if you do not, they will be less likely to listen to you next time. Remember, a dented credit record will stay with you for a long time. The best way to avoid foreclosure is not to over-borrow at the start. The next best step is to not ignore the warning signs of upcoming difficulty.
Gain control over your foreclosure situation and discover all of your options.
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