In California, when a homeowner becomes two months delinquent on their loan, the mortgage company records a Notice of Default and sends a notification to the homeowner. After the date the loan becomes two months delinquent, the foreclosure process takes roughly four months to complete.
How Can I Avoid Foreclosure?
Once you’ve defaulted on your loan payments, you should notify your lender immediately that you’re working on a resolution to avoid having the property go into in foreclosure.
The obvious way to further avoid foreclosure is to pay any outstanding delinquent loan amounts and any associated fees that the mortgage company had to pay to file/begin the foreclosure process.
Because most homeowners are unable to pay outstanding loan amounts, even if you have already entered into foreclosure, many lenders will allow you additional time to resolve the delinquency if they believe there is a likelihood of avoiding the repossession of your home through foreclosure.
You may also enter into a forbearance agreement whereby you agree to both make future loan payments on time and to a schedule of repayment on past due amounts.
Lenders are also receptive to the sale of your home in order to save your equity, however, if you haven’t any equity a Short Sale and discounted payoff which the bank accepts as “full payment” will be less painful than foreclosure.
Finally, the absolute worst thing you can do is nothing…do NOT do nothing!
If I Enter Into Foreclosure, Can My Lender Collect Any Losses From Me?
A lender would need to do a Judicial foreclosure in order to recover any losses incurred on your mortgage as a result of foreclosure. Although it rarely occurs in California, theoretically a lender could pursue a deficiency judgment through a Judicial Foreclosure on some mortgages.
Either through the sale of the property at auction (or “Trustee’s Sale”) or from a sale after acquiring the property at the auction, the lender receives the proceeds regardless. This is another reason why lenders prefer to work with the homeowner to resolve the problem and avoid acquiring the property through foreclosure.
Can I Deed My Property to a Third Party to Avoid Foreclosure?
Unless the mortgage is paid off when you deed the property, you will almost certainly remain as the primarily responsible party for the repayment of the loan. If the lender eventually forecloses, it will be on your credit record. Not only do you give up control of the property when deeding it to a third party but it does not alleviate you of your responsibility to pay the loan. The only time you should deed your property to someone is if you have paid off the loan and consulted with an attorney.
How Does a Foreclosure Affect My Credit?
There is nothing worse or more damaging to your credit than a record of completed foreclosure…even bankruptcy is forgivable. Your credit record will be negatively impacted for years and greatly hinder your ability to borrow money. Whenever possible, it is well worth the time and energy to do everything in your power to avoid foreclosure.
What is a Notice of Default?
A Notice of Default occurs in California when a borrower is two months delinquent on their loan payments. The lender records the NOD against your property and sends you a notification in the mail that a commencement of foreclosure has begun. Once the borrower receives this notice it is imperative that they act accordingly to do everything possible to avoid going into foreclosure. The borrower has more than three months from the recorded date of the NOD to negotiate a course of action with their lender to avoid the completion of the foreclosure.
Will a Forbearance Agreement Avoid Foreclosure?
A Forbearance Agreement is an option you should consider to avoid foreclosure. This is an agreement between a mortgage company and the borrower whereby the borrower agrees to make timely loan payments moving forward and any delinquent payments, costs, and fees associated with the foreclosure proceedings. Its main benefit is that it allows the borrower to keep the property.
You will be obligated to provide documentation to the lender that circumstances out of your control i.e. injury, illness, job loss, etc. caused you to fall behind in your payments.
Can A Short Sale Stop A Foreclosure?
If the homeowner presents a compelling Short Sale proposal (stating reason for hardship and includes financial records) to the lender the lender will usually work with the homeowner to delay the foreclosure. The lender would rather work with you to solve the problem vs. going into foreclosure to acquire your property. A Short Sale is a very viable option if you have no equity as it allows the lender to satisfy the loan by accepting a discounted payoff and the lender almost always pays all closing costs i.e. title fees, escrow fees, and the real estate commission. You should always speak with your lender if they contact you to keep lines of communication open as it will benefit you if/when you are appealing for a Short Sale.
What Foreclosure Scams Should I look Out For?
Sadly, there are many people out there who try to take advantage of homeowners in this unfortunate situation. They are very convincing at making you believe they can quickly and easily solve your mortgage payment problems. These are usually too good to be true.
You should be cautious of:
- People forcing you to sell your property too fast. If you have equity, they want it. By providing fast cash they solve your problem and they get your equity. Occasionally, they offer a small amount of money to you – which signals they are getting lots of your equity.
- People wanting you to sign the deed to the property over to them. Often called the “Bailout” scam. The investor tells the homeowner that he will be allowed to stay in the home and pay “rent” to the investor until a long term solution can be worked out. Once the owner signs the deed to the property over to the investor, only headaches will follow. The investor has the deed, the investor has the control. Amazingly enough, the homeowner who signed over the deed is still responsible for the loan! The investor usually fails to make payments and the homeowner gets stuck with a foreclosure.
- People charging a consulting fee to work with your lender to find a solution. In nearly all cases it is illegal in California for anyone, besides an attorney, to collect a fee as payment for making arrangements with your lender. See California Civil Code Sections 2945-2945.11 for more information. Your lender will gladly work with you directly if you want to arrange for payment of delinquent amounts and retain your property. See above for details regarding a “Forbearance Agreement”.