Foreclosure is a frightening thing to face. Here’s some more information on what foreclosure is, what the process involves, and how you can recover from it.
Foreclosure Is A Process
Foreclosure is a series of events during which a lender attempts to recover the balance of a loan from a borrower who is unable to pay. There are phases to foreclosure process that are determined by the state you live in. You should consult a foreclosure lawyer to help you understand your rights during this process. They’ll be able to advise you on your state’s laws.
Nonjudicial Foreclosure Process
Below you will find the main steps of a nonjudicial foreclosure. Nonjudicial foreclosures are the majority of foreclosures in California.
Foreclosure Avoidance Assessment
1. Foreclosure Avoidance Assessment – The lender will, and must, contact everyone listed on the mortgage loan in order to assess the financial situation and explore any potential options to avoid foreclosure.
Additionally, the lender:
– Is not allowed to start the foreclosure process until at least 30 days after contacting those listed on the mortgage to make this assessment
– Must advise you during the first contact that you have the right to request another meeting regarding how to avoid foreclosure. This meeting must be scheduled to take place within 14 days of that first contact
You can authorize a lawyer, HUD-certified housing counseling agency, or other advisor to speak with the lender on your behalf about ways to avoid foreclosure. And you cannot be forced to accept any plan that is reached during that discussion.
Notice of Default
2. If a plan to avoid foreclosure is not found, the lender can record a Notice of Default. This must be recorded in the county where your home is located and be issued at least 30 days after contacting you for the foreclosure avoidance assessment. This Notice of Default marks the beginning of the formal and public foreclosure process. The lender must send you a copy of this notice via certified mail within 10 business days of it being recorded. You then have 90 days from the date that the Notice of Default is recorded to fix the default, usually by paying what is owed.
Note: Before the foreclosure process begins, the lender may send you letters that are NOT notices of default, but demand payment.
Notice of Sale
3. If you do not pay what is owed, a Notice of Sale is recorded, stating that the trustee will sell your home at auction in 21 days. This takes place at least 90 days after the Notice of Default is recorded.
The Notice of Sale must:
– Be sent to you by certified mail.
– Be published weekly in a generally circulated newspaper in the county where your home is located for 3 consecutive weeks leading up to the sale date.
– Be posted on your property, as well as in a public place.
– List the date, time, and location of the foreclosure sale, as well as the property address; the trustee’s name, address, and phone number; and a statement the property will be sold at a public auction.
Property Sold at Public Auction
4. The property can be sold at public auction at least 21days after the date when the Notice of Sale is recorded. A successful bidder is required to pay the full amount, either with cash or a cashier’s check. The successful bidder then receives a trustee’s deed. The lender usually bids at the auction, in the amount of the balance plus the foreclosure costs. If no one else bids, the home goes to the lender.
Deed-in-Lieu of Foreclosure
A deed in lieu of foreclosure (DIL) allows you voluntarily give the home back to the bank, but it’s important to note that it comes with significant credit consequences that can linger on your credit report for up to seven years. You’ll need to qualify for a new loan if you want to refinance another property, such as an investment property or vacation home. Having a deed in lieu on your record can make getting a loan approval more challenging, but not impossible.
Here are some steps for your deed-in-lieu of foreclosure:
1. Check your credit report and repair any items you are able to. Contact creditors and set up payment arrangements if you need to clear up a delinquent account. If you see any errors or old accounts, file a dispute and provide any supportive letters or documentation to the credit bureau so they are able to launch an investigation. Any information proven to be incorrect will most likely be deleted on your credit reports.
2. Apply for a refinance loan with the home’s current lender. You will need to present other evidence showing you are a worthy loan candidate. You will want to provide the loan officer with a hardship letter that details the circumstances that led to the deed in lieu, in addition to any layoff pink slips or illness documentationproving hardship.Showing cash savings and verified income statements will help bolster your profile. Complete a loan application if you are preapproved. Provide any documentation available for verification; paycheck stubs, W-2s, tax returns and bank statements.
3. Look for a lender that is participating in the federal government’s Home Affordable Modification Program, HAMP, or Home Affordable Refinance Program, HARP. You may qualify for a HARP loan modification if you have a conventional loan guaranteed by Fannie Mae or Freddie Mac. You may qualify for a HAMP loan modification if your current loan is insured by FHA, VA or USDA.
4. Prepare your home for the appraisal such as replacing broken windows or cracked tiles and improve curb appeal by planting flowers and clearing out debris. If your loan officer approves your refinance loan, she’ll order an appraisal as a final step. Provide the appraiser with a list of the upgrades or additions made to the property.
Tip
Pay your current mortgage on time and try to avoid making late payments for at least 12 months prior to applying. The impact of a DIL diminishes over time.
It’s Possible to Recover After Foreclosure
Foreclosure can be a devastating experience, but recovery is possible! Here are some ways to prepare for the aftermath.
Damaged Credit
It can take between three and seven years for your credit score to bounce back. And the lower your initial score, the less time will be needed for it to recover. For example, a consumer with a pre-foreclosure score of 680 will take three years, while a consumer with a score of 720 or above will take about seven years. In the meantime there are some habits you can learn to rebuild your credit: build an emergency fund of 6 months, pay your bills on time, and use credit cards wisely.
You Might Receive Higher Interest Rates
After going through foreclosure your interest rate can increase as much as 30 percent. If your credit record is good other than the foreclosure this rate can drop to a lower amount within two years.
Potential Employers
You might have to disclose your foreclosure to potential employers because they often perform credit checks if they are hiring for a job that requires the person to be financially responsible – such as an accountant position or even cashier. It might be in your best interest to be completely up front about this, and maybe even helpful to explain how the foreclosure has helped you change your habits.
Watch for a Tax Bill
In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act, protecting foreclosed homeowners from being taxed in some instances. But that law expired this year, so your forgiven debt may be considered taxable income. But there are exceptions and if you can prove you’re insolvent, some or all of your forgiven debt might not be taxable.
Avoiding Foreclosure
There are steps you can take to avoid home foreclosure. You should immediately contact your lender if your circumstances change due to a loss of job or other unforeseen circumstance and you’re unable to pay. Remember that mortgage lenders would rather you stay in the home, rather than try to recoup the money on the loan via a foreclosure sale. Because of this, they are willing to work with homeowners that are willing to work with them. A lot of times mortgage lenders will still work with you even if you’ve missed three monthly mortgage payments.
Working with a Bankruptcy Attorney
Foreclosure can be hard to understand. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible.