by Rahmi Sari
I used to work in the foreclosure department in one of the leading mortgage companies for four years. In light of the sub-prime crisis, I thought I'd share some general information. So, let us start with some terms that are used a lot.
Foreclosure is a legal process that the bank takes when you stop making your mortgage payment. In the end, this process enables the bank to repossess your home. The actual timing and when they would start the process depends on your state laws.
Foreclosure Sale is 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.
Foreclosure Sale Date is determined by state law. Some states will have a far away date, six months or more, and some have only a few short months.
Reinstatement Amount is 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 four months, then your reinstatement figure will be four months of mortgage payment, plus penalties, plus other fees.
Payoff Amount is a dollar figure that is needed to totally pay off your home loan. This usually happens when you refinance or sell your home.
Workout is 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). Or they can draft up a payment plan for you, enabling you to 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 plan's 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. 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. Judicial foreclosure will also need to mail, post, and publish, but I'm not very knowledgeable about the details.
The home foreclosure process varies, but generally the items below need to happen before a foreclosure sale.
- The bank refers your property to their attorney/trustee company.
- The attorney/trustee company will record what is called a First Legal document at the county recorder's office. 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 First Legal notices. This is to let you know that 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. 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.
- A small number of states require that the owners be personally served.
- 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, but you can use this knowledge as a tool to prevent the loss. 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 home foreclosure, but they fall under two broad categories.
- Reinstate Your Home Loan - By being current on your loan, the home 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 if it is less than what it's supposed to be. If and when you send in the reinstatement amount and it has been accepted, your home should be out of foreclosure.
- Payoff Your Loan - 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 - 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 home foreclosure, but almost always there are other sides that need attention as well. For instance, this might be a good time to think and evaluate why you're in foreclosure. There are many causes behind foreclosure. 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. If you can afford it, then get the reinstatement funds to the bank as soon as possible before the amount gets larger.
This is no time to put the problem on the back burner. 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, call them and follow up. Make sure it gets done. Speak to a supervisor or manager when necessary.
Taking care of things early will also save your hard-earned dollars. If you have not realized it by now, the home foreclosure process costs money. Substantial amounts 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.
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.
I sincerely hope this will help some people and de-mystify the foreclosure process somewhat. On the very last note, I am not an attorney, and the above should not be used as a substitute for legal advice, but just as general information so you can have better understanding of what is going on during a foreclosure.
You can see more of Rahmi Sari's work at http://rahmisari.com/.
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