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.

The process

Before

you read further, please note that the process below is for a

non-judicial foreclosure, which means it is done outside of court. I’m

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 I’m 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.

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.

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 state’s statutes regarding real estate matters.

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 it’s 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:

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.

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.

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 don’t 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 won’t be as bad as if you’ve 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!