Foreclosure And How To Avoid It
WHAT IS FORECLOSURE?
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Through a mortgage or deed of trust contract, the lender has the legal right to use a property as collateral in case the borrower does not uphold their payment obligations.
Upon a borrower’s failure to make a loan payment on time, the loan becomes delinquent. A borrower defaults upon missing a payment, and three to six months after the missed payment, assuming the loan is still delinquent and the borrower has not made up the missed payments within a specified grace period, the lender will begin to foreclose. As a borrower falls further and further behind, fees are added for late payments and it becomes increasingly hard for the borrower to catch up on payments.
SO HOW DO I AVOID FORECLOSURE?
Probably the biggest fix: don’t bite off more than you can chew! Don’t take out a loan bigger than you can make payments on, even if that four-story restaurant with crystal chandeliers and a live band every night has always been your dream. Ask for reasonable loan amounts and then consistently set aside money to make your payments every month. If you can even manage to be ahead in your payments, that’s a great way to ensure you won’t fall behind.
Don’t ignore the problem. The longer you wait to address the fact that you can’t make your loan payments, the bigger those payments are going to become! If you fall behind, contact your lender as soon as possible. Lenders don’t want your property, and they will work with you, perhaps negotiating new terms to help you through your difficult financial times.
Don’t ignore your mail. If you get a letter, email, or phone call from your lender, open it! Keep yourself aware of what’s going on with your loan and communicate openly with your lender.
Prioritize your spending. If you are struggling to make payments, peruse your spending records and see if there are any frivolous expenses you can cut out, such as subscriptions, entertainment, pricey meals, etc. This may not be the end-all, save-all, but it will make a difference, even if it’s a small one.
Foreclosure is a necessary part of lending, but it doesn’t have to be a necessary part of your borrowing! By keeping up on your payments, keeping in contact with your lender, and making financially smart decisions, your property can and will be financed in no time! Check out our ten-question quick app now to get your loan started!
Annie is a student at Brigham Young University, an entrepreneur, and an avid ice cream eater. She has happily been a team member at American Life Financial for two years now and loves learning about the ins and outs of real estate and lending, as well as the economics that affects the real estate market today.