There can be several reasons for not being able to repay a home loan, such as a job loss or unforeseen accident. However, missing mortgage repayments can result in the lender taking steps either to ensure you repay the loan or, failing that, to recover the home loan amount. They may even take legal action or evict you from your home and take possession of it. You may consider selling your home if you can no longer afford the mortgage, but you’ll need to do so before the lender files a case against you.
How does the home loan foreclosure process work?
Simply missing a mortgage repayment doesn’t result in the lender initiating foreclosure. Typically, you may first get a repayment reminder. If you don’t respond or if the lender cannot contact you, they’ll serve you a default notice, which will specify a 30-day deadline for catching up on the missed repayment. You should remember that even a default notice can affect your credit score negatively. You may also need to approach a lawyer for advice about responding to a default notice, as you can face legal action if you aren’t able to make any repayment before the deadline mentioned.
Lenders may initiate the case against you by first sending a Statement of Claim seeking to recover the loan amount from you. You can dispute this Statement by writing to the Australian Financial Complaints Authority. However, if the lender doesn’t get a response from you, they can act to evict you and take possession of your home. They can repossess your home, in which case you’ll continue to be listed as the homeowner, and sell it off. Alternatively, the lender can foreclose or transfer the title of the home to themselves.
How can I get my house out of foreclosure?
You may not be able to get your house out of foreclosure if the lender has initiated the procedure for foreclosure of your home loan. Your best option may be to avoid the risk of foreclosure. If you find yourself unable to repay the loan as per the repayment schedule, you should speak to your lender at the earliest opportunity, as the lender may have options for addressing your financial hardship.
This can include changing your home loan repayment plan to an interest-only repayment if that works for you. However, you’ll have to explain your situation to the lender. In some cases, the lender may allow you to pause your home loan repayments for a while. This can increase the cost of your home loan as a result of interest accumulating during the pause. You can also check if you’re eligible for loan relief schemes offered by your state or territory.
In the worst case, you may have no option other than selling your home. When facing this scenario, you need to remember that you may be able to get a better deal for your home while the lender would probably only ask market price for your home. Consider speaking to a financial advisor if you miss a mortgage repayment and are worried about the lender repossessing your home.
Can I get a home loan after a foreclosure?
When a lender starts a foreclosure process against you, it will get reported on your credit file and negatively affect your credit score. A foreclosure indicates that you’re probably not making enough money, and may not have sufficient savings either. All of this can make it difficult for you to get approval for another home loan, even from a different lender.
However, if you can work on boosting your savings and improving your credit score, you may be able to apply for a home loan after some time. You could also approach a mortgage broker for advice on getting home loans with a low credit rating or when facing a difficult financial situation.