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Foreclosure
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FORECLOSURE

 

What is a foreclosure?

A foreclosure is the legal means by which a lender seeks the collateral of a borrower who has defaulted Default occurs when a borrower fails to meet the repayment terms of his or her loan contract. In the context of real estate, this typically involves the repossession of someone’s home or property. The first missed payment is technically considered default, but most lenders are not likely to begin the foreclosure process until a consecutive amount of payments have been missed.

How long does the foreclosure process take?

The process of a foreclosure can take anywhere from 3 months to a year, depending on the real estate statutes of your state. A typical foreclosure process may follow this sequence of events:

1)   The process starts when the borrower defaults (misses) on their loan payments. The lender will generally send notification to the borrower informing them that they are in default.

2)   If the borrower is unable to or does not settle the missed payments, the lender then takes legal action. Depending on your state statutes, the borrower either:

3)   Files a lawsuit to foreclose with a court of law or;

4)   Files a notification to foreclose with the countys public records office

5)   The property is advertised at a public foreclosure sale and sold to the highest bidder. If there are no acceptable bids from the public the lender takes the property back.

What can I do if I am faced with a foreclosure?

The first course of action you should consider is contacting your lender as soon as you realize you are unable to meet your borrowing commitments. Generally speaking, most lenders want to help borrowers keep their homes, as the foreclosure process is very expensive for every party involved. Your lender may have assistance programs available to help you come up with a financial plan to avoid foreclosure. Also, check to see what government programs and/or services you may qualify for.

What can I do to avoid a foreclosure and keep my home?

Some common options are:

Lump sum payment

Your lender may allow you to make a lump sum payment to get your loan current.
Special Forbearance Your lender may allow you to arrange a temporary reduction or suspension of your payments for a short period of time. This course of action is generally exercised when the borrower incurs a temporary economic hardship and anticipates economic recovery in their short-term future.

Mortgage Modification

Your lender may allow you to change the terms of your loan by refinancing and/or extend the term of your loan. This will help to reduce the amount of your monthly payments. The lender may also allow you to add the amount of the missed payments to the existing loan balance.

Partial Claim

Your may be able to obtain a loan from your mortgage insurance administrator in order to bring your mortgage current. The repayment of these loans can sometimes be deferred for several years or even until the first mortgage is paid off or the property is sold.

What are my options if a foreclosure is unavoidable?

Some common options are:

Pre-Foreclosure Sale

From the time period between the lender filing for foreclosure and the date the property is scheduled to be sold at public auction, you may have the option to sell your property to an outside party to help raise funds to payback the lender. Selling your property before foreclosure can help protect your credit standing.

Deed-in-lieu

The lender may allow you to voluntary give back your property as settlement for the mortgage. This option is only available after attempts at selling the house before foreclosure has been unsuccessful and there are not other liens against the property.

Be aware of scams

Any offer or solution to avoid foreclosure that sounds too good to be true probably is. Do some research and know your rights before you sign any contracts or pay any lending or broker fees.

Resources For People in Foreclosure

www.bankrate.com/msn/news/mortgages/20070529_ARM_rate_reset_glossary_a1.asp?caret=4a
ARM loans terms defined

www.bankrate.com/msn/news/mortgages/20050901b1.asp?prodtype=mtg
How Option ARMs work

http://www.bankrate.com/brm/news/mtg/20020704a.asp
Information on how mortgage modifications work

Foreclosure Solutions

The current U.S. housing market and national financial crisis has caused untold stress and heartache for many families. Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to Denver-area residents for foreclosure are many. Following is a brief explanation of these solutions, including their benefits and drawbacks:

Reinstatement

A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.

1)   Benefit:  Does not require the mortgage company or lender’s approval.

2)   Drawback:  Requires that a homeowner be able to pay all back payments, fines and fees.

Forbearance or Repayment Plan

A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

1)   Benefit:  Allows the homeowner to make back payments over time.

2)   Drawback:  Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to ‘qualify’ for forbearance.

Mortgage Modification

A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.

1)   Benefit:  Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan

2)   Drawback:  Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.

Rent the Property

A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, is able to convert their property to a rental and use the rental income to pay the mortgage.

1)   Benefit:  Allows homeowner to keep property indefinitely.

2)   Drawback:  The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.

Deed in Lieu of Foreclosure

Also known as a ‘friendly foreclosure’, a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.

1)   Benefit:  Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.

2)   Drawback:  Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.

Bankruptcy

Many have considered and marketed bankruptcy as a ‘foreclosure solution,’ but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

1)   Benefit:  Does not require lender approval.

2)   Drawback:  If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall-not stop-the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.

Refinance

If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

1)   Benefit:  In some cases, this will lower payments.

2)   Drawback:  In today’s market, a refinance will almost always raise mortgage payments, and is an expensive process.

Servicemembers Civil Relief Act (military personnel only)

If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under theServicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.

1)   Benefit:  If qualified, this will lower payments on all consumer debt in addition to mortgage payments.

2)   Drawback:  Must be active military to qualify.

Sell the Property

Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

1)   Benefit:  Allows homeowner to avoid foreclosure and harvest some of their equity.

2)   Drawback:  In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).

Short Sale

If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.

1)   Benefit:  A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual’s public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).

2)   Drawback:  Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.

This represents only a summary of some of the solutions available to homeowners facing foreclosure. Please call me today for a free confidential evaluation of your individual situation, property value, and possible options.

The above brokerage assumes no responsibility nor guarantees the accuracy of this information and is not engaged in the practice of law nor gives legal advice. It is strongly recommended that you seek appropriate professional counsel regarding your rights as a homeowner.

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