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Homeowners Face Eviction Following Moratorium

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Thousands of homeowners face potential evictions as they exit mortgage deferment periods. While the federal eviction moratorium ended on August 26, 2021, more than 800,000 Americans were still in deferment at the end of October. At least some of these homeowners could face potential foreclosures once their deferment period ends. Some states, including New York, created state-wide extensions on eviction moratoriums; Utah wasn’t one of those states.

In October, ATTOM released its third-quarter 2021 statement outlining foreclosure and distressed property statistics in the United States. The data shows that the total number of homes with foreclosure notices, scheduled auctions, or bank repossession is up 34 percent from the second quarter of 2021. More than 19,000 properties filed for foreclosure in September alone, an increase of 102% from September 2020.

More than 45,000 homeowners were facing foreclosure at the end of October.

Major cities like New York City, Chicago, Los Angeles, and Houston, Texas, saw the highest foreclosures in the third quarter. Utah ranked 33 for foreclosures with 4,706 total filings in the third quarter.

Why are so many homeowners facing foreclosure?

The increase in foreclosure rates isn’t entirely surprising as many homeowners who were facing foreclosure pre-pandemic are just coming out of forbearance. The federal government issued a moratorium on evictions in response to the COVID-19 pandemic. Homeowners and renters were safe from losing their homes while unable to work due to economic shutdowns. Homeowners who were already struggling to keep up with their payments pre-pandemic also took advantage of the moratorium. Now that the moratorium has expired and homeowners are reaching the end of their deferment period, they’ll need to resume their payments (and, in some cases, repay whatever they deferred) to avoid foreclosure.

The moratorium was initially slated to expire on December 31, 2020. The Biden administration eventually extended the emergency bill to August 2021.

In addition to the moratorium that prevented lenders from filing foreclosure paperwork, homeowners could apply for forbearance. The mortgage forbearance allowed homeowners to skip mortgage payments for a set period. Standards for forbearance were simplified to enable more homeowners to qualify. More than 7 million homeowners took advantage of the foreclosure moratorium at its peak.

The double-edged sword

While both the moratorium and forbearance options provided relief to many Americans who may otherwise have lost their homes during the pandemic, it also created other problems.

For example, some landlords were unable to enforce on-time rent payments. This created a logjam of problems. Suppose landlords could not make their payments because their tenants weren’t paying. In that case, they could risk losing their investment property or their home.

For homeowners, the mortgage forbearance was a double-edged sword. While homeowners could skip payments without the risk of losing their home, some lenders require a balloon payment once forbearance ends. The balloon payment requires homeowners to pay back all their missed payments in one lump sum. Borrowers who cannot make their mortgage payments aren’t likely to have access to a lump sum amount to repay what they missed. In these cases, forbearance just delayed financial problems.

Why is a foreclosure so dangerous?

Foreclosure is a massive financial bomb. If you have a foreclosure on your record, your ability to buy (or even rent) a home will be significantly limited. You likely won’t qualify for a conventional loan for at least 7 years following a foreclosure, and some landlords won’t rent to people who have a foreclosure on their credit report.

Foreclosures have several negative consequences, including:

  • Eviction from your home
  • Damage to your credit report for years
  • Inability to purchase a new home for several years
  • Difficulty qualifying for quality rentals
  • You may still owe money to the bank following a foreclosure
  • Emotional and mental stress

 

The worst part of foreclosure for most homeowners is losing their house, a place they’ve called home. And, while the physical and financial toll is enough to strongly encourage homeowners to avoid foreclosure, the mental health impacts are also substantial.  Mental Health experts rank losing a home and financial strain as two of the most significant stressors leading to severe depression and anxiety.

Foreclosure is a complex process, and many homeowners can avoid the whole thing by considering their alternatives and finding the proper help.

What are the alternatives?

Buyers facing foreclosure have several options that could protect their financial future. While some options won’t help the buyer keep the home, they can reduce the economic fallout for a faster recovery. Alternatives to foreclosure include:

Forbearance:  Some homeowners may qualify for an extended or new forbearance. While the federally mandated program expired, some lenders may be able to offer a temporary forbearance to qualified owners. Homeowners will need to prove that they can catch up within the set time granted repayment.

Refinance: Competitive interest rates make refinancing your loan much more profitable. If you’re able, refinancing could make it easier to keep up with payments. You may even be able to save money on your loan.

Modify your loan: If you don’t qualify for a refinance, you may be able to modify your loan. Lenders don’t want to foreclose on homes. A foreclosure is time-consuming and expensive, so many are willing to work with homeowners to avoid the foreclosure process. Modifying your loan means changing the payment amount, loan term, or due date. The combination of these could make it easier to afford your monthly payments.

Short sale: Your lender must approve a short sale. A short sale will affect your credit score. However, it won’t affect your credit for as long as a foreclosure. A short sale means you sell the property for less than what you owe. You may still be responsible for the difference between what you receive for the home and what you owe.

Less common options: In addition to the above, other less common options include:

  • Deed in lieu of foreclosure
  • Mortgage assumptions
  • Reverse Mortgage

 

In most cases, your credit score will take a hit. However, in most cases, an alternative to a foreclosure is the better option.

How can brick help?

Our goal is to help our customers avoid foreclosure at all costs. We know how difficult it is to recover from a foreclosure.

We work with each customer individually and help find the best solution for their home. Our goal is to help our customers walk away free from any burden so they can get the fresh start they deserve.

If you have any questions about getting a cash offer on your home, reach out today.

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