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Foreclosure is one of the most frightening financial situations you’ll ever face. It’s important to understand how the process works and what you can do about it.
Armed with this information, you can consider next steps.
Steps in a Missouri Foreclosure
The process technically begins when you miss your first payment. Once this happens, you’ve breached your contract.
Still, the bank can’t do anything about it for at least 120 days. That gives you time and breathing room to do any of the following:
- To come up with the money you’ll need to bring the loan current.
- Arrange for a short sale, or, if you have sufficient equity, to sell the home as normal.
- To pursue a mortgage modification or engage in a loss mitigation strategy.
- To pursue a deed in lieu of foreclosure.
- To declare bankruptcy.
Many of these options are only worth considering if you don’t want to stay in the home. For example, a deed in lieu of foreclosure is essentially a voluntary foreclosure. You will be relieved of all debt, but the bank will own the home and you’ll only have so long to move. On the flip side, you won’t owe any deficiency balances if the bank agrees to take the deed.
If you want to stay in the home, bankruptcy may be your only option for staying in the home.
If you don’t take any of these actions, the bank will pursue foreclosure. Missouri is a non-judicial foreclosure state, which means the process does not require court involvement. The lender mails a Notice of Foreclosure to the homeowner 20 days or more before the date of the sale, and publishes a notice in the paper.
In Missouri it is possible to redeem the home after the foreclosure sale, but you’ll have to pay the full amount of the debt within one year of the sale. You won’t be able to pursue this option if someone buys the home during that one year period.
The Effect of Chapter 13 Bankruptcy
Chapter 13 bankruptcy gives you the benefit of the automatic stay. This means no creditor can take action on your debts. This includes your mortgage lender.
The past-due debt gets included in your Chapter 13 plan, which means it will be paid as you make the payments. You’ll be able to stay in the home if you make house payments as normal moving forward. It’s essentially an opportunity to catch up over a 3 to 5 year period of time.
The Effect of Chapter 7 Bankruptcy
If you know you just can’t stay in the home and you suspect you’re about to be saddled with a large deficiency balance, Chapter 7 may be the way to go. The home will be sold to pay off your debts, and you’ll have to leave.
This won’t show up as a foreclosure, which hurts your credit way more than a bankruptcy does. It’ll wipe out any deficiency balance and give you a fresh start by wiping out most of your debts (excluding student loans, child support, debts created by criminal cases and some tax debts), allowing you to downsize your life to something easier to live in.
Choosing a Course of Action
Before you do anything, it would be wise to consult with a bankruptcy attorney. Bankruptcy attorneys handle all forms of financial distress, and can help you even if bankruptcy isn’t right for you.