The mortgage delinquency rate has fallen drastically from its 2020 highs, but it is still significantly higher than the pre-COVID rate as millions of homeowners struggle to repay their loans amidst rising inflation and interest rates.
At the same time, lenders are also struggling as they are faced with dealing with homeowners who are unable or unwilling to make monthly payments on time and in full. Thankfully, there are a number of measures a bank can take to deal with a borrower who can’t make monthly payments.
Consider a Loan Modification
A loan modification can be beneficial to lenders as well as borrowers. As the housing market cools thanks in part to rising interest rates, it may be in a bank’s best interest to modify a borrower’s loan rather than foreclosing and attempting to sell off the house at an auction or Sheriff’s Sale.
However, a loan modification should only be considered if a client has a sound financial track record and has only experienced a temporary financial problem. If financial problems are set to remain for the foreseeable future, and/or the borrower is unwilling to act in good faith with the bank, the bank will most likely want to move to either a judicial or non-judicial foreclosure, as allowed under state laws.
Starting the Foreclosure Process
Non-judicial foreclosure is usually a bank’s best option. This foreclosure option can be pursued if there is a power of sale clause in the deed and does not require a court appearance. However, the bank will need to follow the steps outlined in the original mortgage agreement to start the foreclosure process. This includes contacting a Trustee to handle the non-judicial foreclosure. It also includes issuing a notice of default and sending it to the borrower via certified mail. The borrower then has ninety days to repay the loan before being evicted from the property.
If a non-judicial foreclosure is not an option, a bank will need to file a foreclosure lawsuit. If the other party does not respond, a default judgment in favor of the lender will be issued. If the other party does respond but cannot content the material facts surrounding the case, a summary judgment will be issued in the lender’s favor.
A bank will want to check the property periodically to see if the borrower has abandoned it. An abandoned property, also known as a zombie property, can be repossessed faster than one with a resident delinquent borrower. What’s more, a bank will want to ensure the vacant property does not fall into disrepair while the foreclosure process makes its way through the courts.
It takes time and effort for a bank to deal with a delinquent borrower. However, a lender has a number of options at its disposal as it works to either repossess the home or modify the original mortgage agreement. Identifying and initiating the best option as quickly and efficiently as possible will save a bank money in the long run and enable it to recoup its losses faster than would have otherwise been possible.