Southern California is probably one of the best places to live in the continental United States. And since Orange County is the quintessential Southern California location, it’s no wonder people fight tooth and nail to own Southern California real estate. Orange County has a lot of things in abundance, like sunshine, beach hair, boardshorts, and expensive housing.
According to an Orange County Register article, almost 20% of Orange County homeowners had negative equity on their homes at the end of 2012. So how exactly is one supposed to live the American Dream in Orange County? Well, you could work on winning the lottery, or you could learn how to avoid a foreclosure yourself.
What a Foreclosure Does
The first order of business is to actually understand what a foreclosure entails, other than devastating your credit score. A foreclosure is the process of a lender (who is usually a bank) repossessing a borrower’s property. A foreclosure occurs when the borrower (also called the homeowner) stops making payments on their loan.
The 5 stages of Foreclosure:
- A borrower stops making payments on their loan, due to various reasons.
- After 3 to 6 months of nonpayment, the lender will issue of a Public Notice, or Notice of Default, through the County Recorder’s Office. This notice is posted on the house’s front door, and alerts the borrower if he or she does not pay the loan, they will lose their property.
- After the public notice is given, the borrower is in pre-foreclosure. There is a grace period (which varies from 30 to 120 days, depending on the state of residence), during which the borrower can try to work out an agreement with the lender or pay the late loan payments.
- If the borrower does not make a move to keep the property, the property goes to auction. If the property is sold in the auction, the lender keeps the money as payment and the borrower is evicted. The borrower has until the auction is over to make the late loan payments.
- If the property is not sold in the auction, the bank takes ownership of the property, and the property is referred to as a bank-owned property or a Real Estate Owned (REO) property.
Can I Avoid Foreclosure?
There are a number of ways to avoid a foreclosure, but the outcomes may not be particularly pleasant.
- Everything Must Go: You could get an appraisal of your house, and if the value of the property (including any improvements or renovations) would cover your debts and dues, you could sell the home and walk away without any losses. This option is a little optimistic and very rare, so lets discuss your other options.
- Short Sale: There is the short sale option, which involves selling the house for as much as you can and bargaining with the lender to accept the proceeds of the sale as payment in full for the mortgage.You might originally think: “Why would a lender settle for less money than they are owed?” Well, my dear Watson, it’s quite elementary; if a borrower is heading towards foreclosure, chances are the borrower has no money to repay the lender. Essentially, the lender would rather get as much money as they can before it’s too late to get any repayment.
- Deed-in-Lieu of Foreclosure: You could cut to the chase and give the lender the property in exchange for clearing your mortgage debt. This option is similar to the short sale, except this might take more negotiating since a deed-in-lieu of foreclosure is usually used as an back up plan to the short sale option.
…And Keep My House?
If those solutions did not suit your fancy because you’d rather find a way to keep your house and stay out of foreclosure, there is another way. However, there is no easy way to have your cake and eat it too.
In order to keep your cake/home/property, or whatever it is, you must take a good look at yourself and reevaluate your priorities. Tight budgeting and some fancy financial footwork is the only route left if you want to avoid foreclosure and keep your house. Liz Davidson of Financial Finesse, a contributor to Forbes’ Personal Finance section, has compiled her own list of ways to harness your inner budgeter without losing out on the things you enjoy in life.
Class is dismissed for now, but if you have anything to add or questions, just leave us a comment below!