As a response to Covid-19 and all of the job losses associated with the government imposed lockdowns, the Federal Government created a mortgage forbearance program to assist struggling homeowners avoid foreclosure during these difficult times. The forbearance program allows homeowners to skip their monthly payments for up to 12 months with several option to pay back the skipped payments and get your mortgage back to its normal terms. To also help alleviate the stress and heartache of being forced from your home, most states enacted a foreclosure and eviction ban. As we are getting close to the end of the 12 months for many homeowners in forbearance, we are also seeing most states roll back their foreclosure and eviction bans.
If you are at the end of your forbearance and not sure what you option are, we can help. There are many options that will help you stay in your home or can help you move on without destroying your financial future.
One of these alternatives is a short sale, meaning you sell your home for less than it is currently worth. The first step in avoiding foreclosure is to contact your mortgage lender as soon as you realize that you are struggling to pay the mortgage. It is in the bank’s best interests, as well as yours, to avoid foreclosure. For many of us, this initial step is the most difficult. It is often easier to ignore the problem and hope it disappears. In a majority of foreclosures, the homeowner never makes contact with the lender, foregoing other opportunities that might help your situation. After you have notified the bank that you may need to short sell your home, they will send you a packet of information. Completing this packet prior to listing your home will make for a smoother process down the road.
Another important step in avoiding foreclosure is to retain occupancy of your home. If you have abandoned or rented the home, your lender may be less willing to accept a short sale or deem you not eligible for a short sale.
There are huge differences between a foreclosed property and one that is a short sale in terms of process and consequences. A foreclosure is a court proceeding in which your lender seizes or takes back the property. A foreclosure greatly impacts your credit score, which affects your financial viability in the future. A foreclosure can lower credit scores by as much as 300 points and may prohibit you from purchasing another home from 3 to 7 years. Credit scores are also used by many companies in screening job applicants. Low credit scores can impact what you spend on everything from insurance to credit card rates. While there is also a credit impact with a short sale, it is much less than that of a foreclosure. With a short sale, many sellers are eligible to buy another home within two years and do not experience such a severe credit drop. The process is also much different with a short sale because it is not a legal proceeding but a selling of the home in the regular market place with Realtor representation. The short sale process is a cooperative rather than adversarial experience between the seller and lender.