How to Stop Home Foreclosure in New York
The decision to buy a home is one of the biggest, if not the biggest decision of your life.
Ensuring that you have all the information as it pertains to the home buying process, including how to avoid foreclosure, will make your life a little easier as you'll always know what to expect when varying situations arise.
The home buying process can seem daunting, but with the proper information and tools, it is possible to purchase the home of your dreams.
How to Stop Foreclosure
- A foreclosure is a legal proceeding that a bank takes after a mortgage holder defaults on a loan. This often involves the selling of or auctioning off of the property in order to recover some of the lost funds.
- If you have missed mortgage payments you should speak to your lender in order to prevent any actions towards foreclosure.
- Loan forbearance and loan modification are two ways a lender can help you adjust your payments if you are having difficulty affording your mortgage.
- Other methods to avoid foreclosure are agreeing to a short sale of your property and handing the deed over to your lender.
- Government-sponsored and private non-profit programs may also help you afford your mortgage and prevent foreclosure.
The Basic Home Buying Process in New York
The number one thing you'll have to consider in purchasing a home is organizing your finances.
Knowing your credit score, how much home you can afford as it relates to your annual income, and qualifying for a mortgage are the initial steps to buying a home.
If you learn that your credit score is too low, there are ways to improve it, so don't panic.
Read on: What You Need to Know Before You Buy Property in New York.
Qualifying for a Mortgage
After you've organized your finances and are confident you can make an offer on a home you want when the time comes, qualifying for a mortgage is the next step.
You will need a pre-approval letter, which is an estimate from a lender citing how much money you will likely be able to borrow from them. A lender can be a bank or a mortgage company.
This letter is beneficial as it will show you, the buyer, how much you can afford, giving you more information to make a solid choice with your money.
The pre-approval letter also demonstrates that your credit is in good standing and that you can secure a home loan when you place an offer on a house.
Keep in mind, the more money you pay upfront towards the house, the less money you will have to borrow.
With a more significant down payment, the lower your monthly payments will be with less interest accruing over time.
The pre-approval application requires financial documents like tax returns, pay stubs, and bank statements.
Be sure to submit your mortgage application promptly to avoid any high closing costs and any changes to the closing date.
Ask friends and associates who have purchased a house to recommend any lenders they've had positive experiences with so that you can work with a company that is trusted.
To learn more about mortgages read How to Choose a Mortgage Lender in New York: The Ultimate Guide.
What Happens After You Close On a Sale in New York?
After you've visited countless open houses and met with your real estate agent for months, you've finally found your dream home!
Now, it's time to close on your new home.
Closing on a home in New York typically takes anywhere between 60-90 days.
Closing is the final step before the house officially belongs to you, where all parties involved, including lawyers, real estate agents, representatives of the title company, and sellers sign varying documents that name you as the new owner.
To learn more about closing costs read, What is a Transfer Tax in NYS and NYC Real Estate Purchases?
Once you move into your new home, the real work begins in keeping up with your mortgage payments.
Depending on the type of loan you were granted, it's possible you made a one-month mortgage payment during your closing and chose the monthly date in which you will make your payments on time.
It is of the utmost importance to make your mortgage payments on time to avoid going into foreclosure.
What is Foreclosure?
Foreclosure is a legal process where the lender (bank or mortgage company) attempts to collect the balance of a loan from a borrower (homeowner) who fails to pay their mortgage payments on-time.
A homeowner who has not paid their mortgage on time is considered "delinquent" or "default."
Reasons For Foreclosure
The number one reason for a home foreclosure is missing payments.
Payments from homeowners usually go missing due to extenuating circumstances like job loss, death, divorce, or medical difficulties.
It may feel embarrassing to miss payments and not want to ask for help from your lender, but this is the only way to stay in your home.
The sooner you're able to speak with your lender about your financial difficulties, the faster they can identify solutions to keep you in your home.
On some occasions, a homeowner may choose to stop paying their mortgage payments because the property is no longer worth the cost of the monthly mortgage payments due to damages.
What Happens If You Missed a Mortgage Payment?
If you fall behind 1-2 months in your monthly payments, you can expect to hear from your lender following up on when they should expect payment.
If you fail to respond to their requests, expect to receive a 90-day pre-foreclosure letter in the mail, which begins the foreclosure process.
Can Foreclosure in New York Be Stopped?
If you find yourself in financial hardships, know that there are solutions available to prevent your home from being taken.
The first thing you must do, as mentioned above, is to speak to your lender as soon as possible.
Once you begin talks with your lender about foreclosure prevention, this is called loss mitigation.
They will be able to support you by providing various solutions that include loan forbearance, loan modification, and paying your debt in full by a selected date.
What is Loan Forbearance?
Loan forbearance occurs when the lender agrees to decrease or defer monthly mortgage payments for some time.
When the forbearance period has ended, the regular mortgage payments begin again with missed payments added on.
This option is beneficial if you are looking for short term relief.
A loan modification is when the lender agrees to alter the terms of the mortgage loan to help you afford your monthly payments.
If you decide to extend the duration of your mortgage, this results in a lower interest rate or a recalculation of your payment schedule.
Note: Beware of loan modification scammers who prey on homeowners who need help. If you've missed payments on your mortgage, you will begin to receive phone calls and letters from "companies" who promise a quick fix.
Debt Repayment and Becoming Current On Your Loan
If missing mortgage payments is a temporary problem, you may choose this option of agreeing to pay your lender the full past-due amount as well as any late fees and penalties.
In New York, this is called reinstatement.
Refinancing with a Different Lender
It is also possible to refinance your mortgage with a different lender through New York State and the U.S. Housing Urban Development (HUD).
What Happens If You Don't Want or Can't Keep Your House?
Just like there are options to keep you in your home and help you to become current on your mortgage payments, there are options to keep you out of debt but result in you losing your home.
In cases of divorce, the parties may decide they no longer want to own a home together, or they do not qualify for a loan modification.
Another reason may be the debt far exceeds the worth of the house.
What Is a Short Sale?
If you cannot sell the house for an amount that covers the debt because the debt is excessive, lenders may agree to a short sale.
With a short sale, you will sell the house to a third party at reasonable market value, and the lender agrees to accept less than your outstanding debt in reimbursement of the loan.
Read on: Short Sales in New York--The Pros and Cons for Buyers and Sellers.
Can I Give Over My Deed to Avoid Foreclosure?
Yes, to avoid foreclosure, you can agree to give the deed to your home to your lender.
The lender then decides that you no longer owe any outstanding debt, and you're free to walk away from your home without a foreclosure sale on your credit report or a deficiency judgment.
What is a Deficiency Judgement?
A deficiency judgment is when the plaintiff, or the bank or mortgage company, makes a request to the court asking for you to pay a deficiency.
For example: If the total debt owed to the plaintiff is $600,000, but the home sells for only $550,000 at an auction, the deficiency is $50,000.
If the court rules in the plaintiff's favor, this is called a deficiency judgment.
How to Prevent Foreclosure in New York
There are plenty of options in New York to prevent foreclosure, including free, government programs, and non-profit assistance programs.
Government Assistance Programs
- Consider speaking with a Forebearace Avoidance Counselor provided by Housing and Urban Development (HUD), who can help you go over your options legally.
- The State of New York Mortgage Agency (SONYMA) offers first-time homeowners low-interest mortgage loans and programs to assist qualified buyers in purchasing their home. They help you to understand things like the home buying process and assist you in securing funds for a down payment.
- LawHelp is a law agency that provides New Yorkers with legal help who cannot afford lawyers. On their website, you can find information about your rights, court visits, and how to gain access to free or low-cost lawyers.
- The HOPP (Homeowner Protection Program) of the New York State's Attorney General's office is a web-based app that can help you find free mortgage assistance.
- The Making Home Affordable Program is a government program that offers free expert advice to help you through the foreclosure process with tips on how to avoid foreclosure, preparing you to speak with your lender and evaluating different options.
Non-Profit Assistance Programs
The New York State Mortgage Assistance Program is authorized by the Center for New York City Neighborhoods, a non-profit organization.
Eligibility is determined by homeowners who have demonstrated financial hardships and show an ability to make payments on time after receiving assistance.
The program provides 0% interest mortgage loans up to $40,000 to eligible homeowners.
The funds can be used to assist in getting a modification, paying off property tax arrears (debt), or settle other debts that can lead to foreclosure.
Other Useful Tips to Avoid Foreclosure?
Possibly losing your home to foreclosure can be devastating, but there are great tips to prevent this from happening.
Prioritize Your Spending
Before you decide that you want to purchase a home, one of the first things you do is organize your finances.
The same diligence you had to save and purchase your home is the same diligence you'll need to use to manage your finances to keep your home.
Automatic Monthly Withdrawals
Setting up automatic monthly withdrawals through your bank account to pay your mortgage on time is the perfect way to stay on top of payments to avoid making late payments.
You can choose the date of every month that you want the mortgage payments to be withdrawn and receive alerts when the withdrawal is successful.
Consider setting up automatic payments for your other household bills as well.
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