If you are a homeowner and you’re facing a risk of foreclosure, you’re likely very stressed out. As a result, you may be – understandably – tempted to react to your situation emotionally. However, it’s important to stay as calm as you can and to think through your options objectively.
In California, there are several things you can do to potentially stop the foreclosure process and protect the investment that you have made in your home. Understanding your options and taking prompt action can make a significant difference, depending on the unique ins and outs of your situation.
Contact your lender
The first step you’ll likely need to take involves communicating with your lender. Many homeowners make the mistake of avoiding contact, which can worsen the situation. Reach out to your lender as soon as you realize you’re having trouble making payments. Explain your financial situation and inquire about available options. Lenders often have programs to help borrowers, such as loan modifications, forbearance or repayment plans.
Loan modification
Seeking a loan modification can potentially allow you to alter the terms of your mortgage to make it more affordable. This might include extending the loan term, reducing the interest rate or even reducing the principal balance.
Forbearance agreement
Forbearance agreements allow you to temporarily reduce or suspend your mortgage payments. This approach can provide short-term relief if you’re facing a temporary financial hardship. During the forbearance period, you can work on stabilizing your finances. However, it’s important to understand that you’ll need to repay the missed or reduced payments at the end of the forbearance period.
Refinance your mortgage
Refinancing involves taking out a new loan to pay off your existing mortgage. This can be beneficial if you qualify for a lower interest rate or better loan terms. Refinancing can lower your monthly payments, making them more manageable and preventing foreclosure. However, you must have sufficient equity in your home and a good credit score to qualify.
Bankruptcy
Finally, filing for bankruptcy can temporarily halt the foreclosure process due to the automatic stay that goes into effect once a petition is filed. Chapter 13 bankruptcy can allow you to reorganize your debts and catch up on missed mortgage payments over a three to five-year period.
Making a decision
Your situation is unique. Connecting with an experienced legal team can help you to make an informed decision that serves your best interests.