Before going through the process that lenders use in Colorado for notifying homeowners and then completing foreclosures let’s review the eight options homeowners have when faced with foreclosure.
Banks and other lenders do not want to foreclose; they are not in the business of reselling properties. They hire others to resell properties hoping to recoup their investment. Let’s look at eight things homeowner’s can do to keep their property after the initial Notice of Election and Demand for Foreclosure is filed.
- The first is seeking a personal loan from a friend or family member. This is typically a request that can be uncomfortable to make, and very few foreclosures are saved by this method. Asking for help early is the key to finding family assistance in keeping your property. Assistance may come in the form of a loan, or a request to become part owner of the property. Either one should come with a contract that everyone agrees on, and be attached to the deed of trust.
2. The second option is to list the property for sale with an agent. This works best if the homeowner acts quickly and when the property is “retail ready”. In other words, the property must be in saleable condition with no more than minor repairs necessary to make it livable. An aging roof, cracked foundation, or a hundred other problems will drive retail buyers away. Non-retail buyers may still be interested: these include investors, fix and flippers, and wholesalers who will buy a property quickly at a discount. Very few real estate agents are aware of options beyond a straight retail transaction. Agents also charge four to six percent interest on the sale price. Many things have to fall in place for this to be successful, and a last-minute cancellation can be devastating.
3. A third option is requesting a loan modification from the lender. This can work if there is a proven source of income, lenders reassess the creditworthiness of homeowners, then will tack back payments and penalties onto the end of the loan. This can work well if there are new income sources to repay the longer-term loan.
4. A fourth option is to rent the property or a room in the property to cover costs. This was adopted by many people during COVID to help cover ongoing costs; however, living with strangers or acquaintances can be stressful and may not be suitable long term.
5. The fifth option is to accept a cash offer from an investor. these typically close after a brief inspection period of ten to fifteen days. Investors cover closing costs and should be skilled in making things as painless as possible with the homeowner. Nearly all homeowners will have to vacate the property on an investor-funded transaction, but this will keep the foreclosure off your credit history and provide cash to resettle. This works well if you have equity built up in your home.
6. The sixth option is to work with someone who understands creative finance. Like cash buyers, these investors should be skilled in working out agreements that eliminate expensive middlemen and rapidly save the house from foreclosing. This will include transactions like subject to where a lender repays past due payments and penalties and takes over the existing loan through a third-party loan servicer. This has become popular in recent years because of the reduced cost of the transaction for all involved.
7. The seventh option is for the homeowner to renovate their property and list it with an agent. The funds required to do this could have been used to bring the loan current, so this does not happen often.
8. The eighth option unfortunately is bankruptcy. Very few homeowners take this option over losing their home as the impact on their credit is devastating and very difficult to recover from.