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A Guide to Understanding How the Foreclosure Moratorium Affects You

On April 21, 2021 by

When the economy takes a hit, the housing market takes a hit. But the ones who suffer the most are homeowners who are servicing a mortgage. Things can go from sleepless nights to constant anxiety over losing your home as the foreclosure inches closer to an end.

Nationally, 1 out of 4,078 homes had a foreclosure filing in the first four months of 2021. In Florida 1 in every 2,237 homes is facing foreclosure, the 3rd highest number nationally after Delaware and Illinois.

The government has extended the foreclosure moratorium up to June 30 to offer millions of families relief from foreclosure. While these measures have brought foreclosures to a historical low, the question on many people’s minds is what happens when the extension elapses and the economic slump doesn’t improve?

Here, you’ll learn how the foreclosure moratorium affects you and ways to prepare yourself for when the government opens the foreclosure flood gates.

How Home Foreclosures have been Affected by the Moratorium

As a homeowner with a federally funded mortgage, and are protected by the moratorium, you can get mortgage-payment forbearance by merely requesting and confirming a financial hardship triggered directly or indirectly by COVID-19.  You can also apply for more loss reduction options such as a loan modification.

Forbearance

A forbearance arrangement works by granting you temporary relief from paying your mortgage loan. Your lender offers to reduce or suspends payments for a fixed period of time. The loan servicer cannot begin a foreclosure as long as the forbearance period stands.

In response, you have to start paying your mortgage balance when the forbearance time expires and catch up on any missed payments.

FHA-Insured Loans

The government arm, the Federal Housing Administration (FHA), has extended its moratorium for new and ongoing foreclosure processes. This, however, excludes unoccupied homes and property. You can’t be evicted either if you own a single-family home insured by the FHA or are handling a reverse mortgage.

To find out whether you have an FHA-insured loan, look for an FHA case number on your mortgage contract. However, the FHA insured status of a loan may be revoked at any time. To find out the status of your loan, contact your bank, lender, or call HUD.  If you’ve been paying mortgage insurance premiums, the FHA insures your loan.

How to Prepare for the Moratorium Expiration

The economy has been picking up in 2021, causing thousands to exit their forbearance agreements. According to new data, the number of active forbearance agreements has fallen by over 12%. However, as of April 6, 2021, 2.3 million people are still holding on to forbearance agreements. If you’re one of these people you can still avoid losing your home in the following ways.

1. File Bankruptcy

When you only have 24 hours or a little more to prevent a foreclosure, filing for bankruptcy is the easiest way to go about it. Filing for bankruptcy immediately induces an automatic stay. Your lender or bank has to immediately stop any foreclosure or eviction action against you. At this point, you have the ability to come up with a chapter 13, five-year repayment plan to catch-up on the arrears. 

Alternatively, if you are not in a position to enter into a five year repayment plan, chapter 7 may be more suited. It temporarily stalls ongoing foreclosure actions, provides the opportunity to stop paying your mortgage, and affords more time for negotiations. Your savings during this time can get you a rental if the foreclosure goes forward. Upon successful completion of a chapter 7 bankruptcy, you are no longer obligated to pay the mortgage balance or any mortgage deficiency.

2. Apply for Loan Modification

It’s best to pursue a loan modification sooner rather than later. You can still seek this path before filing for bankruptcy if you still want to resume payments, but are unable to do so.

This method works because banks are not allowed to foreclose on your property under federal law while pursuing loss mitigation procedures at the same time (dual tracking). If your loan modification application succeeds, foreclosure cannot continue. However, you have to make the new repayment amounts faithfully.

Additionally, if you apply for a loan modification 37 days before the foreclosure date, your servicer cannot foreclose or sell your home until they’ve done the following.

  • Communicate that you’re unqualified for loss mitigation or appeal
  • You reject every offer they’ve made, or fail to comply with the stated terms

Tips for Going through a Foreclosure Successfully

Foreclosures can make you act impulsively, make a slew of mistakes, or just sit and wait, believing there’s nothing else you can do. Since your decisions are crucial in keeping your property-or letting it go with minimal hassles- these tips will help you know what to do.

  • Get in touch with your mortgage servicer immediately once you realize you’re going to fall behind on payments
  • Find a counselor who’s certified by HUD to help you with foreclosure alternatives
  • Learn about how foreclosures work to avoid doing too little or losing out on opportunities to save your home
  • Keep track of all communication between yourself, lenders, servicers, the court, and every other entity involved in the foreclosure process. This information will help you form evidence in case you miss any rightful information from your lender or servicer.
  • Take advantage of mediation if it is available in your state.  Find out about other programs, like homeowner assistance for example, that could help you prevent a foreclosure.

Talk to an Attorney

Because we understand that anyone can get into financial difficulty, we at Klein Law Group have built a compassionate yet effective approach to help people navigate the difficult phases of life with expert legal help. Book an appointment today to see how the foreclosure process may affect you.

Eric Klein

Eric is the Principal Attorney and President of Klein Law Group. He has spent over 20 years practicing law and guiding clients through some of the most challenging times of their lives.