What are Homeowner’s Options Once the Foreclosure Period Ends?
According to the Pew Research Center, more than one-in-five Americans (22%) have been impacted economically from the pandemic. 33% of Americans said they used money from savings to pay for day-to-day living expenses, while 25% said they had trouble paying bills. Many of these respondents described unemployment or job loss as the primary reason. Over the past year, the federal government and local state governments handed out billions in pandemic recovery funds. In addition to funding, legislature was written to postpone evictions and foreclosures on the rental and housing markets. Unfortunately, the so-called eviction moratorium (for renters) and foreclosure period (for homeowners) comes to an end on July 31, 2021. The end to these programs means renters and homeowners will start facing eviction and foreclosure proceedings. However, there are several options that homeowners may not be aware of that could avoid going into foreclosure.
The first option that homeowners can (and should!) look into is loan modification. This process changes the terms of the mortgage to make the borrower’s payments more affordable. Loan modification typically involves lowering the interest rate and/or increasing the length of the loan. Homeowners can contact their lender directly to submit a loan modification application. Common applications will require a questionnaire and documentation, which include pay-stubs and even an affidavit signed by a notary as to why you are seeking assistance. It’s worth noting that a loan modification will require enough steady income to make regular payments.
Deed in Lieu
A second option is a deed in lieu of foreclosure. During this process, a homeowner will voluntarily give back the deed to the lender in exchange for a release in the mortgage obligation. Some banks will require homeowners to attempt to sell the home first and provide a copy of the Listing Agreement, but this is not always the case. Similar to a loan modification, the homeowner will need to contact their lender to complete a loss mitigation application.
One big downside, especially in our current real estate market, is that any equity that might have accumulated over the course of the loan will be lost. Remember: the homeowner is essentially giving the deed back to the bank in hopes that the bank won’t foreclose. This means the bank would benefit from any equity once the home is sold. If there is any equity in the home, a short-sale may be the better option.
Short-sales are often the best option for homeowners that will not be able to continue making payments under a loan modification, but have equity they can recoup in their home. Homeowners will still need to fill out paperwork similar to that of the deed in lieu of foreclosure. In addition, they will need to submit the Listing Agreement from their REALTOR®. Once their home is listed on the Multiple Listing Service (MLS), potential buyers and their agents will begin to view their home – just like any other home for sale! After an offer(s) have been submitted, the homeowners, their real estate agent, and the lender will work together to determine if they will accept the offer. It’s important to know that the lender will ultimately decide whether to accept the short-sale as presented.
In situations like these, it’s important to seek out experts in their field. At Red Door Agency, we have experience working with clients that are facing foreclosures and have successfully completed several short-sales in the past. We take the privacy and confidentiality of our clients extremely seriously and will never share your situation or personal information without your express permission.
Need help deciding on what option is best for you? Want to see how much equity you have in your home? Contact us today for a free discreet short-sale consultation.