Biden’s COVID-19 Relief Bill Includes $10 Billion for States to Help Homeowners Cope With the Pandemic

Money to help people keep their homes during the coronavirus pandemic is included in the most recent coronavirus relief kit.

What Is a Foreclosure and How Does it Work?

It’s difficult to say no to a good offer, particularly on a large purchase like a home. That is why many homebuyers are turning to foreclosed homes in the hopes of having more space in a better location for a lower price.

Foreclosure sales soared in 2009-2010 when the housing market was hit hard by the recession and the foreclosure rate reached an all-time high. More than five million homes were foreclosed during that period, and buyers could sometimes get them for less than half the original price in many places around the United States.

According to the ATTOM Data Solutions 2018 Foreclosure Market Study, foreclosed homes are on the decline now that the market is in better shape, with 624,753 properties filing for foreclosure in 2018. The foreclosure market could be slowing down now that there are fewer of these homes available at a higher price than before. However, foreclosed homes are still far less expensive than the average American home for rent, and those who know how to navigate the foreclosure market will still find a great deal.

It’s important to understand what foreclosure is, why people go through foreclosure, and what to look for when buying a foreclosed home before making a purchase.

What Is Foreclosure?

If a borrower defaults on their mortgage payments, the lender or mortgage investor must take possession of the property. If a homeowner fails to pay their property taxes or homeowners association dues, they will face foreclosure.

The mortgage lender can seize and sell the property during foreclosure to recoup the money it lost due to the mortgage default. Since a mortgage is a secured loan, the lender has the right to repossess the property. That is, the creditor ensures redemption by putting up collateral. They use the collateral instead of paying back the loan with money if they can’t pay it back with money. The house is used as collateral in the case of a mortgage, and the creditor acknowledges that the lender has the right to foreclose on the home if they default on the loan by signing closing papers. Placing a lien on the home’s title is another term for this. This lien on the home’s title is withdrawn until the mortgage is paid off.

People are usually in a position to effectively make payments on their mortgage when they obtain it. Many lenders ensure this by checking the borrower’s income, evaluating their credit history, and imposing a debt-to-income ratio cap (DTI). But, amid all of these promises, life and the economy do not always go as planned.

Why Do Homeowners Go into Foreclosure?

Few people sign a loan agreement with the intention of defaulting on it. However, there are a variety of explanations why a homeowner may miss a payment.

Unforeseen Circumstances

An individual facing foreclosure has always had a life event that has changed their financial situation. As a result, they are unable to make their monthly payment. The following are some examples of such occasions:

• Getting fired, being laid off, or quitting a job
• Taking on excessive debt
• Experiencing a medical emergency
• Incurring a large, unexpected expense
• Losing part or all of their income due to divorce or death
• Experiencing an increase in living expenses
• Relocating before selling the home
• Experiencing distress from a natural disaster

Increased Mortgage Payments

Foreclosure is caused by more than just financial difficulties. It may be as easy as a rise in their monthly mortgage payment. Many with an adjustable-rate mortgage, for example, will see their interest rate rise, increasing their mortgage payment. The escrow charge would also increase if there is an escrow deficit due to an increase in property taxes or insurance premiums. The monthly payment would also increase because property taxes and homeowners insurance are usually charged by the monthly mortgage payment.

These situations are popular with mortgages, and they are dependent on the terms of the loan. Homeowners who don’t understand their mortgage terms, on the other hand, maybe caught off guard and unprepared for even minor changes.

The most recent COVID-19 relief bill, formally known as the American Rescue Plan Act of 2021, was signed into law by President Joe Biden on March 11, 2021, which contains a Homeowner Assistance Fund of approximately $10 billion. This fund would help states develop foreclosure prevention and other homeowner assistance programs. Once the state services are in place, homeowners who are experiencing financial distress as a result of the coronavirus pandemic will be able to receive financial aid for mortgage relief, electricity and Internet bills, and other expenditures that are necessary to avoid eviction, mortgage delinquency, default, or foreclosure.

The Homeowner Assistance Fund builds on the success of the Hardest Hit Fund, which helped distressed homeowners escape foreclosure during the Great Recession and subsequent mortgage crisis by providing millions of dollars to 18 states and the District of Columbia. These states, as well as Washington, D.C., created programs to disperse the funds and support struggling homeowners, which were all controlled by the state’s housing finance department. Mortgage-payment aid, reinstatement assistance, and second-mortgage payoffs were among the options available to homeowners via the services. Although states had until the end of 2020 to use their Hardest Hit funds, some states had to terminate their services early due to a lack of funds. In other states, services to assist homeowners impacted by COVID-19 stayed open or were reopened.

The Homeowner Assistance Fund builds on this concept by eventually providing federal assistance to all states in order to assist homeowners in remaining in their homes. States must apply for the grants, and the amount each receives will be determined by the average number of unemployed individuals in the state over a period of not less than three months and not more than 12 months, as well as the total number of mortgagors with mortgage payments more than 30 days past due or in foreclosure.

After January 21, 2020, the state services will give funds to homeowners who are experiencing financial distress as a result of COVID-19 to pay for qualifying mortgage and housing expenses, such as:

• mortgage payments
• mortgage reinstatements or other housing-related costs connected to periods of forbearance, delinquency, or default
• principal reductions
• interest rate reductions
• utilities (including electric, gas, home energy, water, and Internet service)
• homeowners’ insurance, flood insurance, and mortgage insurance
• homeowners’ association dues, condominium owners’ association fees, or other common charges, and
• other expenses necessary to promote housing stability for homeowners.

The states have until September 30, 2025, to share the money from this fund that has been allocated to them. Contact your state’s housing finance agency to learn about homeowner-relief services in your region. Homeowners, on the other hand, will not be eligible to receive aid until states establish eligibility requirements and services to administer the funds. This will take some time, with the majority of programs likely to begin in early 2022.