How the Home Foreclosure Process Works: Questions, Timeline, Deed in Lieu OfForeclosure Process -- How to Stay in Your Home Without Making Payments Legally
“I’m behind in house payments. I don’t want to lose my home. Help me sell my home fast!!” FIRST, Please try to relax and take a deep breath, I know it can be a scary thought especially when you don’t know what may or may not happen to you and your family. I’ve done a lot of research and been through this myself. I wish I had a relative or friend who could have walked me through the process and relieved me from the stress and sleepless nights of NOT KNOWING MY OPTIONS to keeping my home. I felt powerless, under informed, ignored by my mortgage company, challenged by my bank’s bureaucracy and frustrated with dead-end “so-called” loan modification help desk representatives. I felt I had no one I could trust or turn to, because let’s face it...NO ONE within your circle of friends will admit to being behind in their house (mortgage) payments. Maybe it’s pride, maybe it’s admitting guilt, fault, mismanagement of household income or the feeling of failure. No matter what YOU are feeling, there are thousands of people in the same situation. And I’m one of them.
I wish someone would have been brave enough to share their experience with me. I searched online until I had exhausted every lead that would answer my questions about my family’s uncertain fate – bankruptcy and the foreclosure process. I guess some things you have to learn for yourself if others aren’t willing to share their own story. But that’s also the reason I’m telling my story, to dispel some of the myths and fears associated with the foreclosure & bankruptcy process. I am NOT an attorney, financial adviser, consultant, WHAT AM I GOING TO DO?! I HAVE A FAMILY THAT’S COUNTING ON ME!! One night after a business meeting, my husband came home and told me about a man he had met that happened to be in the same situation we had recently faced. This couple owned their own company, lived comfortably as a middle-class family with two children, a pet and a few family toys; then one day, the bottom dropped out from under them.  While at the business event, the man began to open up to my husband about his situation and his feeling of regret, fear of losing his home, anger over the loss in company profits and the threat of selling a business he had built over the last 8 yrs.
BINGO!! We had a winner...another family facing the same situation we had been faced with when the economy crashed. We had just been through everything this man and his family were about to embark on. We had just finalized our bankruptcy AFTER reviewing and exhausting ALL our options to save a company we built. I told my husband I felt horrible that they were facing the same stresses we had been put through and wished someone would have walked us through the bankruptcy and foreclosure process so I knew there was still... That’s when I had an idea...”I don’t know these people, they have nothing to lose and everything to gain by hearing our story and they certainly aren’t going to judge me for my past”...so what’s stopping me from sharing everything I’ve learned with them? If I were them, I would have loved to talk to someone...ANYONE...who had already been through the process and could answer some of my bankruptcy and foreclosure questions. Someone to calm my real fears! So how could I possibly help this couple? I came up with the only answer that would have made sense to me!! Tell me everything that happened to you so I can prepare my family, avoid mistakes someone else may have made, and create the best possible scenario based on all the information I could gather. The next day we called and arranged to meet the man and his wife for lunch in a relatively private restaurant. We didn’t tell the couple why we wanted to meet with them...only that we wanted to take them to lunch. The initial conversation was just getting to know each other as I had never met the couple; later in the conversation, my husband cautiously brought up the fact that he had learned of their recent dilemma and that we understood their situation as we had been faced with the same financial crisis. It was at that point that I began to explain my feelings of regret and failure over starting a corporation from the ground up and how I too had to face the fact that we were losing it right out from under our feet; how I felt that I had not only let my family down, but my investors, my community and my employees. We had tried to sell the business for more than a year but every offer came in for less than what was owed. The thought of bankruptcy -- though FAR from my prideful mindset -- was getting ever closer to reality. To sum up the lunch meeting, we continued to share in detail our journey. We explained that we wished someone had been willing to talk openly with us about their experience with bankruptcy and foreclosure; if for no other reason, to reduce the amount of stress we had put on our selves from NOT KNOWING OUR POTENTIAL FATE. The wife, now in tears, grabbed my hand and said they couldn’t thank us enough for sharing our story. They had been so overwhelmed with the thought of losing their home, the fear of facing foreclosure and the affects of bankruptcy that it was preventing them from sleeping. This couple that I had only met two hours ago hugged me like I was family and thanked us again for sharing what seemed -- for us -- a painful admission. As we drove home, I told my husband, “in spite of my own fear in admitting the challenges we had undergone, I felt better than ever for sharing our story with someone who truly needed the help”. This is where my new found pride comes from...humbly embracing my circumstances to help others who may be facing foreclosure or bankruptcy. I know the fear, shame and feelings of humiliation that go along with thinking the bank is going to walk in any minute and ask you to put a sign on the door, “Business CLOSED effective immediately”! In most cases...it doesn’t happen right away so BREATHE!!! I can also appreciate the fear of thinking the bank is going to send you a letter that says “you must VACATE YOUR HOME IMMEDIATELY!! Again in most cases, it won’t even happen within three months...so BREATHE!!! You have time to make arrangements with your bank. They don’t want your home; it’s a financial liability to them...they would rather work with you and have you keep it. I’m an over planner, I don’t like surprises; I research beyond sometimes what’s normal. I like to know what’s happening, when it’s going to happen and how do I best protect myself from anything that might try to catch me off guard. I WASN'T PLANNING FOR AN ECONOMIC CATASTROPHE! If you want to know how this whole housing crisis started and who is still in power making these banking decisions -- PLEASE WATCH the 2011 Academy Award Winning This isn’t a Republican OR Democratic issue... It’s the CROOKS in Washington and our government leaders who continueto listen to them!! They are still running our banking industry and not one Here’s what I’ve learned over the past weeks, months and years to help you walk out your own situation and determine what best meets your family’s needs. I’m not going to discuss my business closing because I don’t feel that is the area of greatest need right now. When you watch the news and see your neighbors with “bank-owned” signs in the yard, you begin to realize how widespread the foreclosure process is reaching and then you start to wonder if you had set pride aside long enough to admit you were facing the same challenges, maybe you could have learned something from their experience to avoid, prevent, prolong, extend, postpone, defer or delay the bankruptcy or foreclosure process.
It’s a short read, plain, simple and straight to the point! Foreclosure comes with a price BUT it’s your home -- you don’t have to leave -- you may as well save as much money as you can. now that I’m working through the foreclosure process and moving on -- I don’t need them breathing down my neck for sharing what I've learned.) One piece of advice before going any further, if you need to consult an attorney don’t settle for the first one you consult with. Initial consultations to discuss your situation are usually free. This is your opportunity to get your questions answered but also to make sure you are comfortable with the attorney. Our first two consultations were very demeaning. The third attorney we consulted with was caring, empathetic and excellent in every way; but very legal in her answers. The first two bankruptcy attorneys treated us like a number, looked down their noses at us as if we were using the “system” to sweep our poor judgment under the rug and were very matter of fact about how the process worked. They didn’t care to look at our case as individual or unique to dig through and help find the best solution to our situation, or help investigate whether there were better alternatives. If you need an attorney, don’t settle for the one you see on TV ads; they’re so backed up with case loads they run you through like cattle. Find one that actually takes time to understand your situation. Our attorney, although extremely helpful, only stated facts, it was up to us to determine outcomes, possible scenarios and answer our own “what if” questions. She couldn’t even advise us as to what she would do if she were in our shoes (understandably so, the decision to file for bankruptcy can only be made by you and cannot be advised by your attorney; every case is different); the potential outcome can only be decided, accepted and agreed to by you. You and your family are the ones that have to live with the ending result. But if you understand your options, you can make the process work for you -- after all, that’s what it was designed for... and allow them to stay in their home. The Foreclosure Process: When you miss a payment you will most likely receive a letter from your bank or lender informing you that you are delinquent (behind in house payments) 30 days, 60 days, 90 days, etc. These letters will only last so long, before the “clock” starts ticking. When I say “clock”, I mean the window of time your bank or lender HAS TO LEGALLY wait before they can evict you (the time frame depends on your state laws). You DO NOT want the bank thinking you no longer want to keep your home, this will ALSO speed the process of foreclosure. If you DO NOT RESPOND to the letter(s), the bank assumes you do not want to stay in your home or that you may have already moved out in the middle of the night, which unfortunately does happen because people haven’t been educated. If you don’t contact your lender, you may actually be speeding up the process of foreclosure on your home. The best thing to do is stay in contact with them, even if you are not able to make payments. Bear in mind, if a foreclosure takes place, you will have the amount of the outstanding loan and any additional fees left on your credit report as debt owed. Just because you leave the property or are forced out by an eviction doesn’t mean you no longer owe the lender the amount still outstanding. The only way to avoid carrying that debt is by filing for bankruptcy. Bankruptcy can be a scary thought...I discuss the most common questions and concerns later. Although bankruptcy stays on your credit report for 10 years, a foreclosure stays on your report for 7 years. Either way you will have to rebuild your credit WHICH CAN BE DONE!! The difference between the two is that with foreclosure you are still responsible for paying back the lender.
If foreclosure does occur, you still have time AFTER the sale of the home in which to stay in your home and try to reclaim it (the amount of time varies by state, see your state laws for clarification – www.foreclosurelaw.org). Redemption is the term used to refer to the period of time after your home has already been sold at a foreclosure sale when you as the home owner can still reclaim your home. You will need to pay the outstanding mortgage balance and all late fees and other costs incurred during the foreclosure process. Many states have some type of redemption period. The redemption period and availability is often determined by whether the foreclosure is judicial or non-judicial. Foreclosure timelines and procedures can vary greatly from state to state. You can find specific information about the redemption period of your state (if applicable) by reading the state laws on foreclosure (www.foreclosurelaw.org) FORECLOSURE TIMELINE What happens when I miss my mortgage (house) payments? Foreclosure may occur, but not right away. This is the process banks and lenders use to repossess (take over) your home. After the foreclosure process is complete, only then will you have to move out of your house but you will still have some time. What to do if you receive a foreclosure, default, deficiency, late, overdue payment or notice of default letter?
What foreclosure process alternatives or options do I have?
When facing Foreclosure, here are a few of the most common alternatives people consider: When you are close to missing a house payment or have already missed a house payment, panic sets in and first thoughts generally sound like this...”Let’s sell!! We’ll put the house on the market; downsize or rent for a few years and that will get us out of this mortgage mess.” If you are like many of us, your house may have depreciated over the last few years and is no longer worth what you paid for it. Whether you bought at the height of the housing market (when prices were inflated due to demand), added a second mortgage, or maybe even a third mortgage to make home improvements OR worse yet,... you are still in a crunch. Everyone is looking for AND expects a house deal these days. If you are “flipped” (owe more on your mortgage than your house will sell for) you will have to pay the difference to the mortgage company from the sale at closing. (I’m assuming if you have missed a house payment that you don’t have the resources to pay the difference owed to the bank after the sale.) Second thought or option you may consider when trying to get out from under your mortgage crisis, we’ll let another family who can afford the home at the current monthly payment (including taxes and insurance) move in and assume the loan. WRONG...most mortgage loan contracts have a clause in them which prevent the home owner from “assigning the loan” to another person. (With good reason: The new owner hasn’t been qualified or approved by your lender to make sure THEY can actually afford the home. Assigning a home to a new occupant allows you as the home owner to retain the property if the “renter/ future home purchaser” defaults...but by now you are occupying a new home and if the “renter” does happen to walk out on you, how are you going to pay for both properties?) For this reason, most home loans have a non-assignment clause. If you pursue this option and are found out, you will be considered in breach of your loan contract and are at risk for having the bank accelerate your foreclosure process. “I got it!! We’ll sell the home on a contract for deed.” GUESS AGAIN...you can’t sell the home on contract for deed unless you own the home FREE & CLEAR of a mortgage (in other words, you’ve already paid the home off and now you only pay home owner’s insurance & taxes). Contract for Deed - a contract between a seller and buyer of real property in which the seller provides financing to the buyer for the property at an agreed-upon purchase price. The buyer repays the loan in installments. These usually require a balloon payment (lump sum) where the buyer agrees, depending on the terms of the contract, to apply for a mortgage loan under their own name. The buyer then pays the seller the balance of the outstanding purchase price. This is particularly useful for those who do not qualify for a home loan on their own and need to show proof of timely payments in an effort to get financing from a lender. Fourth idea, let’s rent the house and we’ll find something else until the housing crisis turns around and then we’ll sell. It may be possible but there are a few things to consider,
I’ve run through the most common scenarios people consider when facing a mortgage crisis. Let’s get to the ones most of us end up having to face and work through them. Plain and simple...start with your mortgage lender! Unlike years past, they’ve become experienced pros at the foreclosure process. Here are some of the things we were offered as solutions for mortgage payment help:
The same expenses you and I would take into consideration when figuring our monthly budget and home expenses aren’t even considered. Food, gas, and clothing are factored at a “standard rate” (a rate they use to determine how much the “average family” spends on necessities). The amounts they use...I found were unrealistic. I was told in a phone conversation with my lender that the average family spends $500/mo on food/toiletries. I have a family of four... I’m not going to STARVE MY FAMILY in an effort to reduce my expenses so my lender will help me!! Gas was the same result. The average dollar amount was much
less than our family uses. I can’t reduce the amount I use to
get to work, go to church, the grocery store, doctor and other necessities. As I said earlier, I plan more than most people...I actually use Quickbooks (accounting software) and know my bank balance to the penny. I also use it to balance my check book EVERY month, pay bills, prepare my taxes and track my spending. THINGS YOU CAN LIVE WITHOUT.Since these few necessities aren’t factored into the overall loan modification review process, most of us don’t qualify because we make more ON PAPER when using our gross income (before taxes are taken out) compared to our “expenses”. I don’t know about you but my kids need to eat, and I have to get to work to feed them. These are all costs that make up the “cost-of-living” and although these are on the rise and wages are being drastically reduced, it’s not up for discussion according to lenders. I must restate... I am NOT a legally trained advisor, mortgage consultant, accountant, or attorney. I am only sharing my experience of the foreclosure & bankruptcy process.Here are a few other suggestions you may want to consider: At no additional cost, you can contact a HUD-approved, non-profit credit counseling agency and they can try to help you lower your OTHER monthly payments and create a budget plan that may work for you. You can reach them at 800-225-5342 or 888-995-HOPE. Foreclosure & Other Banking Terms/Definitions:
Deed in Lieu of Foreclosure – voluntarily transferring ownership of your home to your mortgage servicer. The reason for this option is that the lender avoids all the costs (attorney, court, sale fees) associated with the foreclosure process and gains the rights to sell the house faster but you as the owner avoid having a “foreclosure” on your credit record. This may not be possible if you have liens against the property, a 2nd mortgage, judgments from creditors, or if the outstanding loans are greater than the house will sell for in today’s market. IF you are considering this option, there are things you MUST BE AWARE OF:
Your credit report will be saved from having a “foreclosure” listed on it for the next 7 years but if you’ve had any missed or late payments that will all remain on your record. Potentially making it difficult to qualify for another home loan right away. Carefully review this option to see if your lender is willing to help you qualify for a new mortgage loan. (ASK YOUR LENDER to help you qualify for another home in exchange for the DEED IN LIEU OF FORECLOSURE. It’s only fair since you are helping them avoid costs that they help you move on. Otherwise, you may only be able to rent for the next 18-months until you’ve shown proof of financial stability.) owe to the actual sale will again become your debt and show on your credit report as debt until paid off. In either of the above scenarios, if you do not pay the “difference owed” to the lender from the amount of the sale, the attempt to avoid having a “foreclosure” placed on your credit report will be REPLACED with a deficiency judgment which is just as bad. The lender can impose a deficiency judgment, which will remain on your credit report for 10 years (no different than a bankruptcy which stays on your report for 10 years). If a deficiency judgment is placed against you, the lender or creditor has the right to garnish your wages -- contact your place of employment and force them to take money out of your weekly check and send to them until your outstanding debt is paid back. Partial Claim Option – if you become able to make your monthly payments after a recent delinquency (failure to make mortgage payment), your past due amount may be brought current by your lender by placing a 2nd lien on the property -- creating another loan on your home for you to make payments. There are two foreclosure types, depending on your state laws. The terms of your loan agreement will determine which foreclosure process may be taken: Judicial Foreclosure The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares that your lender can legally foreclose on you, your home will be auctioned off to the highest bidder. Non-Judicial Foreclosure The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust documents. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of that there is a default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines". Power of Sale Foreclosure Guidelines If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. However, in Minnesota, a non-judicial foreclosure may only occur if: 1) no lawsuit to collect on the mortgage is already underway; 2) the mortgage and any assignments of the mortgage to new lenders have been recorded; and 3) a notice has been given eight (8) weeks before the foreclosure on a homestead. If all of these conditions have been met, then the foreclosure may proceed as follows: A notice of sale, containing the borrower and lender(s) name, the original loan amount and current amount of default, the date of the mortgage, a description of the property and the time, place and date of the foreclosure sale, must be recorded in the county where the property resides. The sheriff of the county in which the property is located must conduct the sale on the date specified in the notice of sale. At some point during the sale, the sheriff must read an itemized statement, which has been filed by the lender, of the amount due at the time of the sale. The property is sold to the highest bidder, who will receive certificate of sale. Lenders may pursue a deficiency judgment, but it is limited to the amount of the fair market value of the property and the unpaid balance of the original loan. Borrowers have up to one (1) year to redeem the property by paying the past due amount on the loan. KNOW YOUR MORTGAGE RIGHTSFind your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office. Valuable information about foreclosure prevention (also called loss mitigation) options can be found online. (http://portal.hud.gov/hudportal/HUD/topics/avoiding_foreclosure) You've done all your homework, explored workout options, talked to a housing counselor and tried to talk to your lender. But, the lender won't work with you. What do you do now? If any firm claims they can stop your foreclosure immediately and if you sign a document appointing them to act on your behalf, you may actually be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional or a HUD-approved housing counselor. For conventional loans
Talk to a HUD-approved housing counselor at 800-569-4287. They may be able to help you with your lender. You can also contact HOPE NOW or call the Homeowners Hope Hotline at 888-995-HOPE to ask for assistance in working with your lender.
If you’ve exhausted every effort to save your home and come to the decision that bankruptcy or foreclosure is your only option... I’ve written a self-help book on: |
