This is a somber topic, but I hope it will be useful.
I used to work in the foreclosure department in one of the leading mortgage companies for 4 years. I better know a little bit about foreclosure, right? =) In light of the sub-prime crisis that the US is having right now, I thought I'd share some general information that I hope would be helpful to a homeowner, whether you're in foreclosure or not. I've always wanted to give out some information, and here I am doing it.
So, let us start with some terms that are used a lot in foreclosure, because it's probably a good idea to be familiar with them.
Terms Foreclosure - a legal process that the bank takes when you stop making your mortgage payment. This process would enable the bank to, in the end, repossess your home. The actual timing and when they would start the process depends on your state laws. Say for example, if you haven't been making payments for 2 months, then on the 3rd month they could start the process.
Foreclosure sale - an event where your house will be sold in a public auction, which will cause you to lose the house, and the bank or the winning bidder to take repossession of the property. This can be prevented. More on this later.
Foreclosure sale date - the date that the foreclosure auction is scheduled to happen. This date is determined by state law. Some states will have a far away date, 6 months or more, and some have only a few short months.
Reinstatement amount- a dollar figure that is needed to be paid to the bank in order to bring your payments up-to-date. For example, if you haven't been paying for 4 months, then your reinstatement figure will be 4 months of mortgage payment, plus penalties, plus other fees. Payoff amount - a dollar figure that is needed to totally pay off your home loan. This usually happens when you refinance or sell your home. Workout - a term used in reference to the mortgage company helping out borrowers in foreclosure. Workout has many faces. For example, the mortgage company can reduce your interest rates to make your monthly payments lower and more affordable (usually called loan modification), they can draft up a payment plan for you thereby enabling you catch up on your back payments while in addition to paying your normal payment (usually called repayment plan), etc. If you do get into a workout plan, make sure you understand it completely. Ask questions of what will happen if you are unable to meet the plans schedule.
Before you read further, please note that the process below is for a non-judicial foreclosure, which means it is done outside of court. Iím not familiar with the judicial process, so I will only say that roughly 50% of all the states are under the judicial process, and the other half is under the non-judicial process. Judicial foreclosure will also need to mail, post, and publish, but Iím not very knowledgeable about the details. Okay, so lets move on.
Foreclosure process varies from state to state, but generally, items below need to happen before a foreclosure sale can be held.
Okay, I know it sounds horrible. Even I get a bit depressed writing about this. But you can use this knowledge as a tool to prevent the loss. Now you know the general sequence of foreclosure, I suggest you find out the exact timeline for the state that you live in. Call your bank/attorney/trustee company for explanations, or if you want, hit the internet to look up your stateís statutes regarding real estate matters.
- The bank refers your property to their attorney/trustee company. The attorney/trustee company will process the foreclosure for the bank.
- The attorney/trustee company will record what is called a First Legal document at the county recorder's office, in the area where the property is. This starts the clock ticking. For some states, the foreclosure sale date can be calculated by adding some number of days to the First Legal date.
- The attorney/trustee company will send you those First Legal notices, usually by mailing them out. Basically, this is to let you know that they have taken the first step, and you are officially in foreclosure.
- Some states require that these notices be posted on the property (on your front door, fence, garage etc) where it is visible. So no, the attorney/trustee company is not doing it to humiliate you or add more stress, but to make sure you are aware of what's going on.
- Some states require that these notices be published in a local newspaper for a number of times. Again, this is so that you know what is happening in case they did not reach you by mailings and postings. This also informs the general locale, and some real estate investors watch these publications for upcoming foreclosure sale where they can bid on the property.
- A small number of states require that the owners be personally served. This basically just means that a Sheriff, or a process server, hands out those notices to you in person.
- Foreclosure sale will be held at the auction venue.
- You have some number of days before the new owner takes full possession of the house. After that date, they have legal power to evict you from the house.
What you can do There are several ways of stopping foreclosure, but they fall under two broad categories.
- Reinstate you home loan - by being current/ up-to-date on your loan, the foreclosure will be canceled. You can do this in lump sum, or through a workout plan. Important: if you are doing a lump sum, make sure you request this amount from your bank before sending in your payment. They will not accept your fund if it is less than what itís supposed to be. Insufficient funds can cause more problems because it will be sent back to you; this will cause more delays and more headaches that are not necessary. If and when you send in the reinstatement amount and it has been accepted, your home should be out of foreclosure, proper documents recorded, and any foreclosure sale date will be canceled.
- Payoff your loan - if you pay your loan off, automatically the foreclosure is stopped because the house will be all paid for. You can do this in several ways, but two of them are:
The above is basically is just the technical side of foreclosure, but almost always there are other sides that need attention as well. What I mean is, this might be a good time to think and evaluate why you're in foreclosure. It could be because of job loss, the passing of a breadwinner, adjusting interest rates, living beyond your means, increasing debts, divorce, etc. There are many causes behind foreclosure, but I guess the point I'm trying to make is, you must determine whether or not you can still afford to live in your home. If you cannot, then I suggest you sell it and move to a more affordable home (or however way you want to rectify that). If you can afford it, then get that reinstatement funds to the bank as soon as possible before the amount gets larger.
- Refinance - by refinancing your loan with a new mortgage company, you would payoff the old loan, and create a new loan. It's sort of like starting over with a new slate with a new company.
- Sell your house - by selling your house, hopefully you'll be able to payoff your home loan, and use what's left to buy a more affordable home. This could be hard for some people for the obvious reasons, but it is one of the ways out of foreclosure.
I somewhat understand that we are sometimes live in a state of denial when troubles come upon us. This is how I explain it to myself when I see homeowners put up their properties for sale mere days before the foreclosure sale date, or when they call in and say that they need to buy new expensive pair of jeans for their children and thus cannot afford this month's payment, or when they made contact with the bank 1-day before the sale and requested possible workout plans.
Again, what I'm stressing is, this is no time to put the problem on the back burner. Things take time, and sadly to say, mortgage companies aren't known for their efficiency. So it must come upon you to make sure you are on top on the whole process. If you have requested but have not received your reinstatement or payoff figures when they say you would, call them and follow up. Make sure it gets done, speak to a supervisor or manager when necessary. Yes, there is possibility that the bank will accommodate you and draw up a workout plan on last minute, rush out needed figures, or even accepted your payoff after the sale has taken place. But why? Why put the all risks on you when you donít need to? Why do all that and take years off of your life? It is your house, your home, your property. Nobody will care for it more than you do.
Taking care of things early will also save your hard earned dollars. If you have not realized it by now, foreclosure process costs money. Substantial amount of money. The bank needs to pay the attorney/trustee company for their services, and the mailings, postings, publications and a whole list of other fees as well. And yes, these fees are passed on to you. So, if you are able, it is in your best interest to stop the foreclosure as soon as possible. For example, if they have recorded the First Legal document, but have not progressed to mailings or postings and the rest, then you will be charged only for the recording of the document, and a portion of attorney/trustee fees. I used to see $300 - $500 figure for this (again, each state will vary). Now compare this to a full blown foreclosure fees and costs of $2500 upwards. That is quite a difference. Why lose money when you don't have to? As a last note, if you reinstated/payoff your loan after only a few months into the foreclosure, your credit wonít be as bad as if youíve gone to a foreclosure sale. A better credit helps everyone these days, and I believe to have foreclosure on your credit report is one of the big no-nos after bankruptcy. Well, so that is it about foreclosure today. I sincerely hope this will help some people and de-mystify the foreclosure process somewhat. It has been 9 months since I last worked there, so there is a chance that what I know has now become outdated. On the very last note, I am not an attorney, and so the above should not be used a substitute for a legal advice, but just a general info so you can have better understanding of what is going on during a foreclosure. Till next time!