No matter how complicated this one word “Foreclosure” might sound, we’ll serve you the simplest and most digestible version of it. After all complexity and confusion result in nothing else but wrong decisions which might lead you away from your home. And nobody wants to stride away from their home, right?
So let’s break this boulder down into pebbles for better understanding.
Foreclosure? What’s that and why am I receiving this notice?
To answer this question let’s first understand what foreclosure actually means.
Right from the basics.
Foreclosure implies a property that belongs to the bank, that once used to belong to the actual owner.
The real owner either abandoned that property or voluntarily deeded it to the bank. So, basically, it is the right of the mortgage holder or third party lien holder legally, to get the ownership of that property.
In simpler terms, it is their right to sell the property and use the proceeds to pay the mortgage if it is in the default category.
This entire process of taking away the mortgagor’s property under mentioned circumstances is what basically called Foreclosure.
There are cases where the borrower may deliberately stop paying the promised mortgage because the property might be under-water (meaning, the amount of the mortgage exceeded the value of the property) or possibly because he’s tired of managing the property.
After all, it isn’t a cakewalk to manage a property. Whatsoever the reason, the bottom line is that the borrower cannot meet the terms of that particular loan.
Technically, it’s not your home until you’ve cleared the mortgage completely. Until that time, you are SHARING the ownership of that property with the bank. So, if you do not keep your end of the bargain fair, the consequences could be dire.
What are the cons or disadvantages of foreclosure?
Let’s be clear with this, with numerous pros – unfortunately, there are cons to this as well.
It will lead to the loss of your property, foreclosure fees, additional legal fees, and probably a deficiency judgment if your outstanding liens exceed the current value of that particular property. Your credit will also be shot when the dust settles.
What is Pre-Foreclosure?
After receiving an affirmation from the lender, the borrower enters a period known as Pre-foreclosure.
In this time period of 30-120 days (depending on local regulations), the borrower can work out an arrangement with the lender through a short sale or pay the remaining amount owed.
Suppose, the borrower pays off the default during this period, then the foreclosure ends and the borrower can’t evict and sell that property. And if the default amount is not paid, foreclosure comes down storming at your doorstep.
What if the default amount is not paid off?
Well, if the default amount is not paid by the mentioned date, and fails to meet the deadline then the lender decides a date for the home to be sold as this Foreclosure Auction, also referred to as Trustee Sale.
This Notice of Trustee Sale (abbreviated as NTS commonly), is recorded with the County Recorder’s Office and constant reminders are delivered to the borrower.
Also, NTS is posted on the property and printed in the newspaper.
Such auctions can be held right on the steps of the County Courthouse, in the trustee’s own office or at any convention center across the country, and even right at the property which is in foreclosure.
What is this “Auction”?
At the auction, the home is sold to the highest bidder for cash payment. Because the pool of buyers who can afford to pay cash on the spot for a house is limited, many lenders make an agreement with the borrower (called a “deed in lieu of foreclosure”) to take the property back. Or, the bank buys it back at the auction.
What happens when a third party doesn’t purchase a home at the auction?
If a third party does not purchase the home at the auction, then the lender acquires the ownership of it and that particular property becomes what is known as a bank-owned property more commonly known as Real Estate Owned (REO).
Bank-owned properties are sold in one of two ways. Most often, they are listed by a local real estate agent for sale on the open market.
Zillow lists bank-owned properties for sale. Few lenders prefer to sell off these REO-labeled properties at a liquidation auction.
Now that you are aware of the basic fundamentals of foreclosure let’s head to the prevention section.
How do I prevent my home from foreclosure?
There are numerous ways to stop foreclosing but to begin with, let’s clarify the concept of “Stopping the foreclosure”.
When the lender files a Notice of Default, your options are limited.
That is why it is better for you to call your lender before falling behind on your payments because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have commenced.
After you get this done, you will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan.
If you cannot make up the missed payments and the lender refused to cooperate, here are a few other options enlisted to stop foreclosure:
Sell your property – Meet up few real estate agents as an opinion will be required of market value and average to sell your home. Beware! As you’ll be lured in to hire a broker as many sellers feel they need the marketing and exposure that brokers offer. Compare both to determine which meets your needs and time agenda.
Consider a Short Sale – If your home’s worth is less than the amount you owe, then you are a candidate for a short sale. A short sale affects credit but it’s not as bad as foreclosure itself. You or your agent will need to negotiate with your lender to find out if the lender will co-operate on a short sale. This is termed as Pre-Foreclosure Redeemed.
Sign a Deed-in-Lieu of Foreclosure – This is considered as deeding the property back to the lender. The homeowner gives the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action. It’s a known fact, that Deeds-in-Lieu of foreclosure affects credit the same as a foreclosure. The lender might also work out an arrangement where a homeowner can remain in the home until finding a place to move into. If you are an owner in the default category, then negotiation is a must to claim the right to retain occupancy, arguing that if the lender followed through on the foreclosure, an owner would still have the right of possession while that procedure continues.
Consider Bankruptcy – Legal action such as bankruptcy can stop all foreclosure actions. Meet a lawyer who specializes in bankruptcy cases, and request him for a thorough elaboration on all of your options, costs, and the time frame involved. It won’t permanently stop a foreclosure action but it can postpone it.