Foreclosure
Regardless of the side of the transaction you find yourself on this is the area for answers to all your foreclosure questions. There is also a very informative overview of the entire foreclosure process.
Introduction
How Does It Happen?
The Foreclosure Process
What is a foreclosure?
The Notice of Default
The Notice of Trustee Sale
Eviction
How long?
Options
Do Nothing
Refinance
Selling Your Property
Liquidate
Family, Friends, & Money
Forbearance
Bankruptcy
Take Action Now
What happens if you wait?
Aftermath
If You Keep Your Property
If You Lose Your Property
The Future
Foreclosure Help Request
How Does It Happen?
The number one question asked us is, “What does a person facing foreclosure do?” The answer depends on how it happened in the first place, what the current situation is, and what the plans are for the future.
For the most part, the foreclosure itself is simply a result of a more serious problem. The main breadwinner lost their job, a family member has just incurred a huge medical or legal expense that insurance won't cover, downturn in real estate values, or one of the old standbys: divorce, death, and taxes. We refer to all of these situations as the “speed bumps” of life.
The point is, all manner of mishaps can result in a homeowner finding themselves in foreclosure. Whatever your particular speed bump, the cycle leading to foreclosure goes something like this: Initially, you hit the speed bump. Usually it takes a while before the ripple effects begin to affect your finances. A month will pass before your creditors start to call, as it becomes harder to meet your monthly obligations. The speed bump keeps you up at night. Bill collectors call all day, and in no time you're spending more time worrying than anything else.
As things get tighter you decide some bills are more important than others and try to pay them first. But without realizing it, the speed bump is wreaking havoc with your finances. Your philosophy slowly changes. You decide to pay the small accounts first, they seem to bug you the most anyway, and the big bills last. But then another problem surfaces. By paying the small monthly bills and taking care of the speed bump, when the big bills are due you find yourself just a bit short of the full payment you need.
The explanations you begin to give get more detailed with each conversation, until all your creditors, and everyone else, know you're in trouble. The unopened mail stacks up and before you know it you've misplaced the letters from your mortgage lender. Your Answering Machine takes all your calls now, no matter who is calling. Although it doesn't seem like it, months have passed since your troubles began.
For the first time, losing your house becomes a possibility. The speed bump that began it all is perhaps behind you now. However, now you're in foreclosure. Fill in your own particulars in the above scenario and you'll have the answer to the opening question. The remainder of this pamphlet will help you figure out where you are now, and what to do next.
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The Foreclosure Process
What is a Foreclosure?
In the event a property owner becomes seriously past due in their mortgage payments (usually at lease 90 days), a collection process called foreclosure begins. To officially start the process the lender must file a public notice called a “Notice Of Default” (NOD) in the local county recorder's office. A copy of this must be sent to the property owner.
If nothing is done to stop the process, then three months later there is a second notice filed with the county recorder's office called a “Notice Of Trustee Sale” (NOS). This notice must be published once every seven days for three weeks (usually in a local newspaper). On the 21 st day, the property can be auctioned off to the highest bidder. The auction/ sale usually occurs on the steps of the local county courthouse.
At this point, the property owner loses ownership of the property.
For technical purposes a property is “in” foreclosure on the day the Notice of Default is recorded at the county recorder's office.
To induce a property owner to make past due payments, a lender will frequently send documents to the owner which have statements warning or threatening foreclosure.
However, a NOD must be actually filed in the county where the property is located for a foreclosure to officially begin. The filing of the NOD is entirely at the lender's discretion. The lender can wait indefinitely to file the NOD after the owner falls behind in their payments. Once the three month reinstatement period has passed, the lender will then record the Notice Of Trustee Sale. This document also must be recorded and is done at the discretion of the lender.
The lender can postpone or cancel the sale, but usually does so only for:
1.)Full payment of the amount behind, called arrearages;
2.)A pending sale of the property, with a certain close of escrow date set;
3.)Forbearance/repayment plan;
4.)Bankruptcy or other court action (Regulation Z violation by your lender, for example).
If none of these actions occur and a Trustee Sale is conducted as requested by the lender, the process ends. This entire process, and all the events that occur between the filing of the Notice of Default and the Trustee Sale/auction, is called a foreclosure.
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The Notice of Default
There are three main parties to the foreclosure process each with specific legal names. The borrower (homeowner) is called the Trustor, the lender is called the Beneficiary, and the entity handling the documentation is called the Trustee. For simplicity, we will use Homeowner, Lender, and Trustee. The Trustee is a neutral third party.
The trustee, by filing public notices, recording documents, etc. does one of two things: Announces to the world that you have paid off your mortgage and now own the property free of any loans, OR, announces to the world that you have not paid the lender, as you promised, and the lender is taking the property away from you by foreclosing.
The Reconveyance, a document stating that you have paid back your loan, is prepared by the Trustee. The NOD is prepared by the Trustee. The NOS is prepared by the Trustee. All miscellaneous documents are prepared by the Trustee. The phone numbers to call on the documents you receive are to the Trustee. However, all actions taken by the trustee are at the request of the lender.
All the information on the NOD is from the lender. The NOD will contain the amount you owe in back payments and other costs (arrearages), the principal balance on your loan, the address of your property, the date the NOD was filed and made public, and verbiage about your legal rights.
Several copies, through various means, will be delivered to you by the Trustee. The NOD also officially sets the date for the three month period, mandated by law, during which the lender is required to accept a full reinstatement of your loan. Simply put, pay all the arrearages during this three month time period and you're out of foreclosure.
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The Notice of Trustee Sale
If no steps are taken during the NOD time period the Notice of Trustee Sale is filed. Although similar to NOD, the NOS has two major differences. First, it sets the date and other information regarding the actual auction/sale of your property. Second, it eliminates the reinstatement period five days before the sale.
During this five day period the lender can refuse a full payment of the arrearages. The good news is that most lenders will accept full payment right up to the day before the sale. Remember, the NOS will be published three times, once every seven days, resulting in your property finally being sold at auction on the 21 st day.
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Eviction
After the Trustee's Sale your property now belongs to someone else. However, they don't have a legal right to actual possession of your former property. To obtain actual possession they must proceed with an eviction.
The eviction process is a legal proceeding. The proceeding is called an Unlawful Detainer action. In this action the new owner is the plaintiff, and you will be named as the defendant. You cannot be forcibly removed from your home until this court action has run its course: a writ of execution has been sent to the local sheriff and the sheriff posts a notice telling you and anyone else to vacate the premises.
The final step. The sheriff returns after posting the notice to vacate and physically removes you from your former home. NO ONE can force you to leave your property prior to this sequence of events.
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How Long?
The minimum time between the day you miss your first mortgage payment and the eviction is approximately five months. The actual time will depend greatly on the actions taken by your lender and you.
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OPTIONS
The first step on your road to recovery is finding the professionals needed to help you make what are certain to be many vital decisions. The options to follow are to serve as a guide.
Each person's situation usually differs greatly when their particulars are factored in. And more importantly, this is probably the first time, and hopefully the last, that you will be in foreclosure. Although this pamphlet will help you understand what is happening around you, don't try to tackle it alone. Get help.
At Access Financial & Real Estate Services, you have 17 years of foreclosure experience at your disposal, for advice and help. Whatever option you choose, we can competently assist you, carry out actions on your behalf, or direct you to other professionals, if the circumstances call for it, that can also be of benefit.
Essentially, your options revolve around two central issues, paying back the loan the lender is trying to collect and doing it in a timely manner, i.e. before a Trustee Sale.
Your Options, alone or in different combinations are: do nothing, refinance, sell, liquidate, borrow from friends and relatives, negotiate a repayment plan with your lender (forbearance), or bankruptcy and other court actions.
As you consider these options remember one thing: keeping your property is secondary, or rather, not really an option but a result or goal. Don't make the mistake of deciding to keep your home at all cost. That all too common emotional error will end up costing you everything, including your house.
Keeping your property is a goal to be considered after you've determined what options are available to you based on your particular set of circumstances. Any option that does not conclude with the lender ultimately being paid back will result in the sale of your property. You can, however, have something to say about the circumstances of such a sale.
We have worked successfully with many lenders and homeowners in the past and are ready to help you get through the difficult road ahead. If, however, you do decide to go it alone we sincerely hope the following options will help you make the right decisions.
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Do Nothing
The most stressful of all your options is to do nothing, but you will be able to stay in your house for several months without making a payment. Saving this money will enable you to have some cash for when the time comes to move elsewhere. Your lender will call you frequently and your credit will be seriously damaged. During this time it is best to keep your other credit current.
If you borrow money from friends and relatives, use it to pay off credit card balances and the like. You'll be in a much stronger position when you have to rent a home. Finally, move out before the eviction. This will also make it easier for you to rent. Consider this option only if none of the others will work for you.
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Refinance
There is a magic number in the lending industry when it comes to borrowers in foreclosure: 65. Or more precisely, 65%. Lenders who will “pull you out” of foreclosure will only loan up to 65% of the appraised value of your home and will charge higher rates of interest and fees than you would pay if not in foreclosure. The major drawback is how will you pay for a bigger loan that your current one?
Refinancing is a viable option only when you are absolutely certain you can make higher monthly payments. Under no circumstances should you refinance, regardless of your equity position, if you cannot make the higher payments.
Long term thinking is critical. Don't waste your equity in a hopeless attempt to buy time. Be honest with yourself. If you're not good at sticking to a budget then this is not an option for you. Basically, borrowing funds is a great idea if you are under 65% loan-to-value (LTV to lenders) and can repay the money.
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Selling Your Property
Selling the house quickly is usually the best option if you determine refinancing will not work. Selling is the surest and quickest way to financial recovery. Selling can save your credit record and give you a fast, fresh start.
In situations where income has been reduced with little chance of reaching a level necessary to make monthly payments, selling is a must. All other options simply postpone the inevitable. If you decide to sell, you must price your home well to avoid a trustee's sale. This is particularly true if you owe more on your loan than your home is worth. Then, you are looking at a “Short Sale”.
A word about “Short Sales”: A short sale (or short pay) happens when the amount owed to the lender is more than the house can sell for. The lender is paid “short” on their balance. This, as you can well imagine, is not popular with mortgage lenders. So, if you choose this option, make sure your real estate agent is a professional with experience in negotiating with lenders in short pay situations.
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Liquidate
Do you really need three cars? Now is the time to consider what are the possessions you really need and what you can live without. Selling off items of value and using the money to pay down your loans should be your goal. At moments like this, every item of value should be considered: retirement funds, college funds, jewelry, everything. But, make sure you plan calls for paying down the principal, not just interest payments. Otherwise you'll just be buying time.
If you take this option, pay off your other credit debt because your objective is to reduce your monthly expense to an amount less than your net income. If you cannot clearly see liquidation accomplishing this outcome before you begin liquidating, don't take this route.
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Family, Friends, & Money
Much of what applies to liquidation also applies here with a few important differences. Plan on paying the money back (or moving out of the state). Nothing can be worse than owing family and friends money. Don't take this step lightly. Everyone wants to help, but everyone also has a breaking point. You'll be putting everyone “to the test” when you take this route. It will have hardly seemed worth it if you end up losing the property in the end. Be particularly cautious of any private concern loaning you money above the magic 65% and securing it against your property. What they really want is your property, and you're helping them get it.
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Forbearance
Regardless of any other option you take, a forbearance agreement should be sought at the very beginning. The reason is, it doesn't cost anything, and it's the easiest way to buy time. Simply defined, a forbearance is an agreement between you and your lender to repay the amount you are behind in the form of an additional payment each month.
Forbearance is also the most common tool lenders use to handle a foreclosure. Most lenders will require a full payment up front with payments for arrearages spread out over the next few months, and sometimes up to a year. But remember, this agreement is to be paid simultaneously with your regularly scheduled payments. A forbearance agreement is NOT a reamortization of your loan. It is a short term repayment plan of what is past due. Drawback? Larger monthly payments.
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Bankruptcy
This is the option with the highest risk and worst long term consequences. A bankruptcy will stay on your credit for ten years. In can affect your future employment, prevent you from getting other types of credit, completely wipe out your other finances and you can still end up losing your property.
So why would a person file bankruptcy? Simple. It stops the foreclosure dead in its tracks and buys time. It is also a way to deal with your other debts. Use this remedy only if you have tried all other options and plan on moving anyway. Filing a bankruptcy will be expensive when using an attorney, but you can remain in the house until the lender acquires a “relief of stay” from the bankruptcy court. This could take several months. A cheaper route is to use any of the bankruptcy kits available at stationary or office supply stores.
The consequences of a bankruptcy can be very severe and should be carefully considered. Consultation with an attorney is well advised. At such an appointment make sure that all you questions are answered and you have a thorough understanding of the process before you file. Additionally, use this opportunity to discuss other possible legal recourses you may be able to take against your lender.
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A Classic Case
Mr. Johnson's (not real name) daughter was involved in drugs. The drug involvement caused his wife to have a nervous breakdown. She eventually lost her job. Due to the family turmoil Mr. Johnson, a self employed businessman, soon became overwhelmed. The business relationships he had built over the years helped keep his income up for a time, but eventually it began to slip.
Embarrassed, he tried to keep his troubles a secret. As his problems grew worse he began borrowing money. First a larger loan on his home, then money from business associates, friends, family, and eventually anyone who would loan him money.
After a time he owed more than he had any chance of paying back. His house was in foreclosure, daughter in rehab, and his wife wanted a divorce. In an attempt to keep his house and buy time, he filed a chapter 13 Bankruptcy (repayment plan). After several failed attempts to get the court to accept a repayment plan, his Bankruptcy was converted to a Chapter 7(liquidation).
Just before his troubles began, Mr. Johnson had started to remodel his home. Unable to finish the work, his home value dropped. Fifteen months after it all began, Mr. Johnson, his wife who he convinced to stay with him, and the rest of his family moved from his home of 19 years to another state. Two months later his vacant property was sold at a trustee sale.
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TAKE ACTION NOW
What happens if you wait?
No one but you know your situation. Your plans and dreams are yours to pursue. So the only advice we can give you that will apply, regardless of your situation, is to take action now. The outcome of this unfortunate situation is in your hands. Until the day you lose your home to a Trustee Sale, it is your property.
It is your decision to sell you home before the trustee sale. The same is true for all other options. Only you can take the steps to put any one of the options in this pamphlet into action.
Waiting will result in someone else making decisions for you. You will not like any of those decisions. Strangers will drive slowly by your home. Offers to sell will come in the mail along with all sorts of promises to help. It can become quite confusing. The point is, don't let the fear of the unknown hold you back. The information in this pamphlet will bear out under the most rigorous scrutiny. It is intended to help you separate the good from the bad and make a good decision. These are the simple facts about foreclosure, use them wisely.
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Aftermath
If you keep your property
At the first sign of any future financial trouble sell and move into a smaller home that is more affordable. You accomplished something that over 70% of homeowners facing foreclosure don't. The remaining 30% will either go back into foreclosure again or be forced to sell for other reasons beyond their control within eighteen months. A very small percentage will still own their property beyond two years. How you feel will depend on how much effort you put into keeping your home.
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If You Lose Your Property
Relief is the most common emotion people feel after it's all said and done. Those who took it to the limit are the most bitter. Somehow they knew they should have cut their losses much sooner. The best part, however, is that now you can begin rebuilding your life. You will survive and perhaps eventually buy another home just as nice as the one you lost. If you follow the blueprint outlined in this pamphlet the journey won't be too bad. If not, at least the sleepless nights will soon go away.
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THE FUTURE
If you're like most people facing foreclosure, now is a good time to reflect back on the positive events in you life. To achieve home ownership you had to have accomplished a lot. From start to finish this situation will, in time, become nothing more than a small part of your life. There is still much more you can do.
You may be thinking your life is in shambles and your future is bleak. Not a chance. Being in foreclosure puts a person in a kind of emotional shock. But once it's over, life returns to normal much faster than you would expect. You will regain the energy you lacked for so long. You'll find out that none of your true friends really care where you live, or how big your house is.
You'll discover a certain freedom of movement. You may travel more. You might find time to finish that certain project you've been putting off. You'll certainly find something else to do other than feeding a life draining mortgage.
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A Success Story
Due to a series of financial setbacks, Mike and Ellen (not real names) needed to use their savings to make their mortgage payment. To make matters worse they were “upside down” on their mortgage.
Before things got worse they called Access Financial for assistance. An analysis of their situation determined that until their financial situation stabilized, selling their current property and renting a more affordable home was the best plan.
The day of reckoning came, and as instructed they paid everything off except their mortgage. With the help of Access Financial they were able to negotiate a “short sale” of their property and avoid foreclosure. Because their credit only showed a few explainable mortgage late's (escrow problems) they were able to rent a nicer home than their old property.
A month after moving into their new place they were back to adding to their savings. The whole process took less that four mortgage-payment-free months.
For more information on this topic specific to your situation please us the request form below.
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