The advent of the Coronavirus has shaken the world to its core. It has affected everyone starting from the normal citizens to the government. Recently, World Health Organization (WHO) declared the virus a pandemic due to its rapid infection and high mortality rate in some countries. In an attempt to battle this pandemic, the government of several countries agreed to halt all economic activities with the exception of healthcare services.
This caused thousands of Americans to lose their jobs as they were advised to stay home for their own safety and the safety of others. This situation has created panic waves and the fear of foreclosure has become a reality. Our purpose for this article is to talk on measures homeowners can take to avoid foreclosure during this period of crisis. We will start by defining foreclosure to get everyone up to speed before we begin.
Understanding Foreclosure
From a non-professional perspective, the term foreclosure details a legal process in which lenders attempt to recover outstanding loans from borrowers who have stopped making payments.
In real estate, a foreclosure is a property that belongs to a bank after the homeowner defaulted on their loan. Most homeowners have the misconception that foreclosures are cheap homes effortlessly since the banks are desperate to get rid of these homes. However, they are playing directly into the bank’s hands. Those homes will be seized by the banks if they are unable to pay the loans, which they collected to purchase the homes.
The purpose of this article is to give homeowners tips they can use to avoid foreclosure. Let’s dive straight into it.
The CARES Act
Due to the outbreak of the Coronavirus, which caused thousands of Americans to lose their jobs, President Donald Trump signed a bill known as The CARES Act, which is the $2.2T economic stimulus package. This bill aims to support American workers during this time of crisis. According to this bill, most adults who meet specific criteria will be given a figure of around $1,200 per month even though some might get less.
As such, the package is structured to provide an adult an additional $500 for each child aged 16 or below. This will be done in a bid to dampen the effects of the coronavirus on the income of each family. This is good news for homeowners who stand the risk of foreclosure. This is because they can use part of this economic stimulus package to cover their missed payments.
They might even go ahead and agree on a repayment plan, which means a specific amount will be a deduction from their package to help cover their outstanding loans. This is the perfect way to use this package to avoid foreclosure.
How The CARES Act Affects Lenders
The lender might give you time to make up the payment with something called a mortgage forbearance. Some lenders might agree to wait for some time before taking legal action. They might use this time to agree to a new repayment plan which is convenient and affordable for you. With mortgage forbearance, the lender or mortgage servicer allows you to pause payment or reduce your payment over a given period.
The reduced or paused payments will be paid back at a later date. This happens in situations of unavoidable hardships such as the coronavirus pandemic which has ripple negative effects such as loss of jobs, illness etc. You need to note that forbearance does not cancel the amount you owe on your mortgage. You will have to pay later on. When you are faced by one of these unforeseen situations, call your servicer and update them on this situation. This is because some servicers might require that you request assistance or a forbearance within a certain period of time after the unforeseen event. After this, you should go ahead and ask them which “hardship” or “forbearance” options are available and choose the one which fits your situation.
Avoiding Foreclosure
- Call Your Loan Provider
When you notice you won’t be able to make your payments, call your lender. There’s a possibility that you can sort this out.
You should also make sure you do not ignore messages, mails or letters from your lender. This might just worsen the situation. The lender might decide to give you a loan modification option depending on the situation you find yourselves in. They might have some proposals, which will be beneficial to both parties. Some lenders might forgive a payment.
- Forgiving Payments
Forgiving a payment simply means that the lender will forgive you if you miss a payment or two and waive your obligation. This will be done only if you agree to be consistent with payment immediately after these waived payments.
- Spreading Payments Over A Longer Term
You might be allowed to spread your payment over a longer term. This is a repayment plan and it is one of the most common ways to avoid a foreclosure. The lender might agree that you can pay the loan over a longer period of time. Let’s say you have an outstanding debt of $2,400. The lender may agree that you pay $200 at the end of every month for a period of one year. This will cover the loan and reduce the burden of the loan.
- Rearranging the Terms of The Loan
Rearranging the terms of the loan. The lender may decide to reduce the interest rate to a more convenient interest rate or freeze the interest rate to stop it from increasing over time.
Borrowers who meet the lender’s lending guideline, or possess sufficient equity might see the lender add the missed payments to the loan balance. The lender might refinance your loan. They can decide to increase the loan balance by adding the missed payments to it and re-amortizing the loan.
You may be eligible for a second loan to repay those missed payments. In some cases, the government allows room for borrowers to take another loan on an outstanding loan considering the borrowing meets some specific criteria.
Bottom Line
Remember, you have options once the legal paper has been served. A notice of default is a scary situation, but with the knowledge gained from this article you can fight for your freedom.
Get your free E-book that gives you more information about stopping your Foreclosure. Second, contact us so we can help guide you through your current situation and give you the best outcome possible.
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