FORECLOSURE 101: Vital Information for Homeowners. Behind on Their Mortgage Payments

Transcription

1 FORECLOSURE 101: Vital Information for Homeowners Behind on Their Mortgage Payments 1

2 Table of Contents FORECLOSURE 101:... 1 Vital Information for Homeowners... 1 Behind on Their Mortgage Payments Introduction Why This Book?? A Healthy Mind-Set & Self-Worth Foreclosure Basics Pre-Foreclosure vs. Foreclosure Lenders Loan Money Possible Options If Your Goal is to Keep Your Home If Your Goal is to Sell Your Home Foreclosure FAQs Top 20 Frequently Asked Questions Foreclosure Laws and Procedures by State Words of Caution Your Next Steps Quick Reference & Review Final Thoughts Appendices: Department of Housing and Urban Development (HUD) Appendix I. How to Avoid Foreclosure Q: What Happens When I Miss My Mortgage Payments? Q: What Should I Do? Q: What Are My Alternatives? Q: How Do I Know if I Qualify for Any of These Alternatives? Q: Should I Be Aware of Anything Else? Q: Are There Any Precautions I Can Take? Q: What Are the Main Points I Should Remember? Appendix II Help for Homeowners Facing the Loss of Their Home Help for Homeowners Facing the Loss of Their Home Facing Money Problems Steps To Take When You May Be Unable To Pay Your Mortgage Contact Your Lender As Soon As You Have A Problem Finding Your Lender Information To Have Ready When You Call: Do Not Ignore Mail From Your Lender Information For Families With FHA Loans Talk To A Housing Counseling Agency Prioritize Your Debts Preserve Your Good Credit Explore Loan Workout Solutions If Your Problem Is Temporary - Call Your Lender If Keeping Your Home Is Not An Option -- Call Your Lender

3 Resources for finding a real estate agent and selling your home Special Disaster Relief Options - Call Your Lender Beware Of Predatory Lending Schemes Beware of Scams: Frequently Asked Questions (FAQ) Appendix III Pre-Foreclosure Sale Frequently Asked Questions Pre-Foreclosure Sale Frequently Asked Questions Appendix IV Special Forbearance Frequently Asked Questions Special Forbearance Frequently Asked Questions Appendix V Deen-In-Lieu Frequently Asked Questions Deed-in-Lieu Frequently Asked Questions Appendix VI Glossary Glossary

4 1. Introduction Congratulations on taking a very important step learning more about foreclosures with this handy reference guide and resource tool. This is one-stop, informational tool is designed to assist homeowners who find themselves behind on their mortgage payments and facing foreclosure. It provides information that will assist you in learning the ins and outs of what foreclosure means so you can understand what options may be available for your personal situation. This book provides a general and thorough overview. Obviously we can not provide the answers to every person s situation. This material will show you where to begin and help guide you towards the right questions to ask of the right people. In the pages that follow you will be introduced to many terms, some of which you may have never heard before. We have included them because many of these are terms that some lenders are going to use and you need to understand what they mean (or know where to go to find out). We have included The Department of Housing and Urban Development s (HUD) Glossary of Real Estate terms in the final appendices. HUD is one government agency that provides assistance to FHA insured borrowers. There are other government agencies, nonprofit organizations and for-profit companies that also may be available to help you. Even though I did not provide names of specific companies or website addresses (other than government references) I have included the type of companies that you can look to for assistance. 4

5 You have absolutely made the right step by deciding to learn all that you can. Now you must take control of this situation the best you can. Keep in mind that no one will ever care about you losing your home as much as you do! Remember too that I am not an attorney and I am not an accountant, if you are looking for help with law or finances please contact someone in that field of work. This is an informational product, a resource manual and a learning tool. Since state laws and individual circumstances differ, there is no way that one 60+ page book can reasonably give any one person all of the information that is needed for his/her individual situation. Nothing you read here or anywhere else and no program that you sign up for can guarantee a successful outcome. But if your mortgage payments are behind and you choose to do nothing about it, I can guarantee that your mortgage lender probably will foreclose on your property and you most likely will lose your home. It s really critical that you understand this and take action immediately! 5

6 2. Why This Book?? To help educate people facing foreclosure and because: Foreclosure is Everywhere! Something is just not Right! Education is Key! Action is Essential! First, foreclosures in the United States are happening all over the place from Georgia s Capital City of Atlanta, to the gambling town of Las Vegas, to Motor City Detroit and in every state in between. Foreclosure is happening in absolutely each and every area of our country and in every price range. Foreclosures are occurring on homes worth less than $50,000 and homes worth several million dollars. The foreclosure epidemic knows no social or financial boundaries. A November 2007 U.S. Metropolitan Foreclosure Market Report from RealtyTrac, the leading online marketplace for foreclosure properties, showed an obvious increase in the number of properties entering some stage of foreclosure. This report showed the top 10 metropolitan foreclosure cities were: 1. STOCKTON, CA 2. DETROIT/LIVONIA/DEARBORN, MI 3. RIVERSIDE/SAN BERNARDINO, CA 4. FORT LAUDERDALE, FL 5. LAS VEGAS/PARADISE, NV 6. SACRAMENTO, CA 7. CLEVELAND/LORAIN/ELYRIA/MENTOR, OH 8. MIAMI, FL 6

7 9. BAKERSFIELD, CA 10. OAKLAND, CA Something is not Right. Other than news reports on predatory lending (meaning when a dishonest financial institution intentionally misleads or deceives the consumer) what I keep seeing over and over again was how to benefit from foreclosures. Seminars, workshops and products are being sold to teach people how to buy and how to invest in the current foreclosure market. What I keep hearing on the radio and seeing on the news and reading on the internet and seeing on late night infomercials is about foreclosure investing. About buying houses cheap, and selling them for profit. Now don t get me wrong, we live in a capitalist nation and I m very okay with all that. But then I thought WAIT A MINUTE! Suddenly I thought of the flip side to all this and thought, who is helping the homeowners before the foreclosure? Who is educating the public on what options might be available to them? Who is guiding homeowners who are in distress with who they should call? Do homeowners know how to try to save their homes or even where to begin? Are people who are facing foreclosure depending on the same mortgage company that is foreclosing on their home to also to educate them on the process? Something is not Right. Education is key! Unlike mortgage lenders and debt servicing companies, real estate professionals and bankruptcy attorneys, most homeowners know very little about the foreclosure process. Most people have never been through a foreclosure and will hopefully not ever have to go through it. The foreclosure process is not simple and it s not clear cut. 7

8 What kind of loan do you have? How many mortgages do you have? How much equity do you have? How many liens are recorded on your deed or on your mortgage? What state do you live in? How far behind are your payments? Are you currently employed? Are you temporarily behind or is this new situation permanent? There are lots of grey areas, many times the answer to a question is, Well, it depends. At this time in your life, it may be almost impossible for you to even think about what to do next, much less about making up past mortgage payments. But the thing is, the more you know, the better prepared you will be and the more chances you have of stopping, or at the very least delaying, the foreclosure process. The Time to take Action is NOW! If your mortgage payment is more than 16 days late (yes, even just one time) and/or you know that you are not going to be able to pay the mortgage this month the time to act is TODAY! 3. A Healthy Mind-Set & Self-Worth Have you heard the expression You get more bees with honey than with vinegar? Facing foreclosure is a stressful situation and you are dealing with difficult financial and emotional issues. Even though the people and the companies that you are dealing with know this, it is essential that you always keep a professional tone and positive attitude at all times. Everyone deals with people. Who would you rather help someone who is nice to you or someone with a chip on their shoulder? You can not do this on your own! You need other people to help you. Before you pick up your phone to make any phone call take a deep breath and try to sit in a relaxed position. 8

9 Have you heard the expression You never get a second chance to make a first impression? Smile when you first meet someone (either on the phone or in person). Think about it, the person on the other end will be much more willing to assist you if you are kind to them. It is also extremely important that you are honest with yourself and that you are honest with the people and companies who may be able to help you. Do not lie; don t stretch the truth, not even a little bit. If you are 3 payments behind, do not tell the people who are trying to help you that you have only missed one payment. People can not help you if they do not know the whole story. You will only hurt yourself and your family even more if you are not honest with those who are trying to help you. Remember you are Not your Mortgage Payment. Facing foreclosure does not make you a bad person. You may be scared, embarrassed or both and these feelings are normal and totally understandable. This is not going to be an easy task to overcome. You are going to have to fight and fight hard if you are going to have a chance in keeping your home. It is time to swallow your pride and ask for help. Face your fears whatever they are, if you want to stay in your home this is a fight worth fighting. Sometimes it just helps to know that you are not alone. We said it before; no one is exempt from the foreclosure process. If your mortgage payment has fallen behind (for whatever reason), it does NOT mean you are a bad person; it simply means you re in a bad situation. 9

10 Again the bottom line, if you are facing foreclosure it is extremely important that you move past the "Why is this happening?" the "How did this happen?" and the "I can't believe this is happening to me!" I beg you to put that aside and STOP the negative selftalk (you can deal with that at a later time if you must). For now it is time to deal with what is in front of you! It is crucial that you understand that at this very moment, time is NOT necessarily on your side! YOU MUST ACT NOW! 4.. Foreclosure Basics A pending foreclosure can be both financially and psychologically overwhelming. Foreclosure occurs when price or terms that were originally agreed upon are not being followed. Plainly put, I loan you money to buy a house and you put the house up for security (or collateral) on that loan. As long as you pay me the money I loaned you plus interest (and follow other established terms) everything remains fine. But if you do not pay for the property (and it does not matter why), I can and will take the house back (so I can resell it and get my money back). Foreclosure occurs for many more reasons than most people imagine. Contrary to some media reports, foreclosure is rarely (if ever) about, I just don t feel like paying my mortgage anymore. As a matter of fact, I have NEVER heard of a situation where someone goes through the process purchasing a home and suddenly decides that they do not want to pay for it without having a very good reason. 10

11 People have great intentions; owning a home is supposed to be part of the American Dream. So why does foreclosure happen? Things happen, life happens, illness, job loss or company reorganization, marital problems, death in the family, poor money management decisions. Military deployment happens. Bad weather happens, hurricanes, floods, tornados. Sometimes it s because of a bad loan or mortgage fraud. Sometimes landlords are foreclosed on because their tenants didn t pay the rent. People are losing their homes to foreclosure at an alarming rate for countless reasons. But sometimes foreclosures can be avoided or at least delayed if you know where to start. 5. Pre-Foreclosure vs. Foreclosure What does Pre-foreclosure? Pre-foreclosure simply means the time period prior to the actual foreclosure process, meaning the homeowner still owns their house but this is the official warning or an official grace period when the homeowner who has not yet done so definitely needs to take action in order to attempt to avoid a foreclosure. Remember the news and infomercials I spoke about in the beginning? Are you at the point where you are behind on your payments and suddenly you have strangers knocking at your door and calling you on the phone wanting to buy your home? How many letters or postcards have you received in the mail from people who you do not know saying they want to help you by buying your house so you can move on with your life? First of all, how do all of these strangers become aware of you situation? Second, are these people for real? 11

12 Plainly, when the mortgage payment is late the mortgage company (or lien holder) files notice to begin the foreclosure process. This notice is a recorded legal document done at the local courthouse where the property records are kept. All of these documents are public information and anyone can obtain this information. Lots of real estate investors who are looking to purchase property in preforeclosure routinely monitor these legal documents in order to form their business mailing lists. No one is spying on you personally or directly and the mortgage company did not do anything illegal. Once the documents are recorded this is just the beginning part of the foreclosure process. The answer to the Are these people for real question well, some yes, some no. Keep reading for more clarity on this. 6. Lenders Loan Money Contrary to some media reports, (most) lenders are not in the business of making loans in order to set people up for failure. Mortgage lenders make their money making loans, not repossessing houses. Generally speaking most mortgage lenders really do want to work with residential property owners to try to keep the owners in their homes. No one wins in the foreclosure process. Remember that mortgage lending is a forprofit business. But mortgage lending profits are made when loans are made, not when homes are foreclosed upon. Lending companies do not make money when they have to foreclose. And just so you know, no one feels good about having to kick someone out of their home. 12

13 But mortgage lending is a business that has rules to follow and generally speaking that is what they are doing. It is essential that homeowners who are at risk of mortgage foreclosure understand what is going on. The downward spiral can be devastating. And as we saw above in Foreclosure Basics, unfortunately foreclosure often happens right after, or worse, at the same time of something else that is going on which just can make the facing foreclosure that much worse. 7. Possible Options Odds are you never planned to be facing foreclosure. But now that you are you have some choices to make. Each option comes with its own set of rules and consequences. Only you can to decide what it is that best fits your current situation. This next section will lay out the possible options for people facing foreclosure. From the previous section you now understand that all of these options will not be available to all people in all situations. Remember It Depends from the beginning of this book? Variables will include what state you live in, what type of loan or loans you have, how far behind your payments are and whether or not this is a temporary setback or permanent situation. There may be additional choices available for some people depending on your age, whether you have been affected by a federally declared disaster such as a hurricane, flood or tornado and whether or not the pending foreclosure is due to military deployment. You may want to print out and review the list of options below before making any decisions or phone calls. 13

14 Read through the list and strike through those options which you know you don t qualify for. Circle the options you may qualify for. Then go back through and put a star or an asterisk (*) next to the options that sound as if they would work for your current situation. If you have several asterisks you may want to number them in the order that you think would work best in your current situation. This may be a useful way to keep everything organized. Where to begin? If you have already received a letter or notification from your mortgage company follow the directions on that notice. Otherwise, your first point of contact is your current mortgage company or mortgage lender. You want to contact the people who you pay your monthly payments to. The name of the department that you need to find is your lender s Loss Mitigation Department. You are trying to find out what type of Foreclosure Workout assistance is available. Terminology can differ a slightly but this is more than enough to get you moving in the right direction. You can start with asking which of the following options you may qualify for. This is a difficult time and can be an overwhelming process, do your best. 8. If Your Goal is to Keep Your Home The first 10 options below are foreclosure workouts that assume you are going to work towards keeping and staying in your home. It may be a good idea to consider these options if your home has equity, if your hardship is temporary, or if financial recovery is in sight. 14

15 1. Full Reinstatement - Full reinstatement is the dollar amount (including payment, back taxes, insurance, penalties etc.) required to bring the mortgage loan current. 2. Forbearance - Mortgage forbearance agreements work hand in hand with other options. During a forbearance period monthly payments are temporarily reduced or put on hold for a limited and specific time period. (Even though payments due are on a postponed, the interest due continues to accrue.) You must work closely with your mortgage lender to arrange for this type of agreement. Depending on the situation forbearance agreements generally have a maximum time period of a 12 month delay. 3. Federal Housing Administration (FHA) Forbearance - If you qualify and under very special circumstances (death of a contributor to the family income, severe disability, or natural disaster) an FHA insured loan forbearance period MAY be extended up to 24 months. This sometimes requires an upfront lump sum payment. In 1965 FHA became part of the Department of Housing and Urban Development (HUD). For several HUD publications and for information and references please the Appendices at the end of this book. 4. FHA Partial Claim - If you qualify HUD also has Partial Claim assistance where they actually advance an interest free loan so you can to repay the past-due interest and escrow amounts. This will leave you with another loan to pay, but it is interest free. This also immediately brings your mortgage up to date. 5. Veteran s Administration (VA) Loans - If you have a VA backed loan your mortgage lender may be able to reduce your interest rate. They also may be able to take the past due mortgage amount, add it to the current principal mortgage balance, and recalculate or re-amortize the new loan. This could result in a lower monthly payment. 15

16 6. Assistance for Service Members on Active Duty - If your payments are behind due to military service, ask about the Service Members Civil Relief Act (SCRA). SCRA allows active military members to suspend or postpone some civil financial obligations. It was designed to assist and protect important rights of active duty military members and reservists who are in active federal service. National Guard Members called to active state duty in response to a national emergency declared by the President of the United States are now recognized under the new statute as well. 7. Repayment Plan - Repayment plans immediately bring your account up to date by re-distributing your delinquent payments over a period of time (normally less than 12 months). The monthly amount is then added to the usual mortgage payment. A change to the interest rate or the term is made to allow you to bring the loan current. 8. Loan Modification - Loan modification also brings your account up to date immediately. But with a loan modification there is an actual change to the mortgage note itself by adding past due interest and past due escrow amounts to the unpaid principal balance and then re-amortizing (recalculating) it over the new term. 9. Full Payoff Refinance - Refinancing your current loan would be paying it off with a new loan. The purpose of doing this would be to make your monthly payment less expensive by extending the term of your loan and/or reducing the interest rate of your loan. This can be especially helpful in the cases where your original loan had an adjustable rate or an interest only mortgage where payments have increased as the interest rate has increased. 10. Reverse Mortgage Refinance - A reverse mortgage is a loan that allows homeowners who are at least 62 years old, to convert part of their home equity into tax-free* income without having to sell their home, give up title to it, or 16

17 make monthly mortgage payments. The loan only becomes due when the last borrower (s) permanently leaves the home. Refinancing would replace your current loan with a reverse mortgage loan. For further information please see BONUS #1 AARP's Home Made Money a Consumer's Guide to Reverse Mortgages. If your goal is to remain in your home and you are not gaining any ground with your mortgage lender there are a variety of resources that may be able to assist you. You may want to work with a company that specializes in saving people s homes from foreclosure as long as that same company does NOT buy homes OR ask that you sign over your deed to them! Yes, you read this correctly. This can get into dangerous territory. But ask yourself, how can someone help you to save your home AND want to buy it at the same time? Some of the most highly regarded foreclosure assistance companies do NOT offer the purchase of your home as one of their options. A reputable Foreclosure Prevention Service or Housing Counseling Agency will have the experience and the time needed to follow the process through to completion. Unlike most homeowners, Foreclosure Prevention Services deal with this each and every day. Obviously these types of companies know that you are in a financial bind and will work with you in terms of their compensation. Some of them even collect nothing if they are not successful in helping you keep your home. Some of these companies are non-profit organizations. To find this type of company I suggest starting with the HUD Counseling Agencies who are required to be non-profit agencies. 17

18 No matter what type of loan you have, you can search HUD s website to find a reputable Counseling Agency near you. Go to If that link is no longer active, go to HUD s homepage ( ) and search for Approved Housing Counseling Agencies. 9. If Your Goal is to Sell Your Home The next 5 options are ways to get out from under the foreclosure, by selling your house. It may be a good idea to consider selling if your home has negative equity (meaning you owe more than it is worth), if your current debt is severe, if your current financial hardship will be long term, or if there has been a significant drop in household income. 1. Deed-in-lieu of foreclosure - This is a good option for a homeowner who wants to avoid foreclosure and is also willing to move. Basically a deed in lieu of foreclosure is similar to returning an item (that hasn t been fully paid for) back to a retail store. It s when the buyer agrees to return the house including the deed to the mortgage lender instead of (or in lieu of) the foreclosure proceeding. This type of agreement may be as close to a win/win as any. As long as the homeowner is immediately released from the defaulted loan including past due amounts and the lender does not have to go through the lengthy process of repossessing the house. Both sides win when this foreclosure doesn t take place. 2. Subject To - This is where the homeowner sells their house to someone else without paying off the existing mortgage. The buyer is purchasing the house subject to the existing financing. Normally the buyer does catch up the back mortgage payments and then takes over the loan payments until they either pay it off or sell it to someone else. This can be a great way to get out of your 18

19 foreclosure, save your credit and sell your home. accomplished within days. And it can literally be But there is a flip side, of course. One of the biggest problems with subject to is that as long as the other person keeps the house, this existing mortgage will continue to show as your debt (on your credit report) even though you no longer own the home. Please note too that a Subject To transactions may violate the "Due-on-Sale" clause of the mortgage, creating a technical default under the mortgage documents. The Due on Sale Clause gives the lender the authority to demand full repayment if the borrow defaults on mortgage terms. While most lenders retain this option, many times they just want the payment and really don t care where it is coming from. It is always a good idea to talk with your mortgage lender and/or a Real Estate Attorney before committing to selling your home Subject To the Existing Financing. 3. Short Sale - A short sale is where a lender accepts less than the full amount due as a full satisfaction of its loan. Short sales avoid the foreclosure process and can be less damaging to your credit rating. But short sales can have significant tax consequences to the original borrower. If a bank is owed $100k but agrees to short the loan (accept a reduced amount) for $90k. The $10k difference may be considered taxable income to you. A real estate tax accountant should always be consulted. 19

20 If you are negotiating a short sale, you always want to make sure that you obtain a written agreement that the lender will not file a deficiency judgment against you for the difference owned. A deficiency judgment is a legal decision filed against a borrower when a short sale does not produce sufficient funds to pay the mortgage debt in full. Deficiency judgments are not legal in every 50 state. 4. Sell Your House - Hire a Real Estate Brokerage Firm ONLY if there is equity AND time. Remember time needed will include getting your home ready for the market, listing it for sale, marketing it to sell, finding a purchaser, waiting for the purchase to obtain financing and eventually going to settlement. A very conservative time estimate on this is 4 months minimum. Some lenders will work with you to arrange a forbearance (discussed previously) while your house is up for sale. Otherwise, a very good option at this point would be to contact a real estate investor. Yes, the kind that we mentioned previously in Pre-Foreclosure vs. Foreclosure section and discussed in detail below. Selling to a real estate investor often has advantages such as being able to sell your home as-is, meaning not having to do any cleaning, repairing, or updating. And many investors can settle on a property within 30 days. If your goal is to get out from under your loan, to move, and to do so quickly then this is a time that I would absolutely look at other options. 20

21 While selling your house through using a Real Estate Company may bring a higher price tag, it unfortunately may not be able to happen within the timeframe that you need. This is when contacting an investment company can be of assistance. Most We Buy Houses type companies assist homeowners facing foreclosure. Pick up a newspaper or use the internet to search We Buy Houses along with your city name (or if you are in a small town, name a bigger city close by) and several names will typically come up. You can also search the internet for Real Estate Investment clubs sometimes referred to as REI. Be cautious. Check references. Ask people how long they have been investing. If something sounds too good to be true, it probably is. Keep in mind that most investment companies who buy houses in pre-foreclosure will not let a homeowner stay in their home after the investor purchases it. It is important that you know this. If you are approached by an investor who says he or she will make up your past payments, payoff your delinquent tax and escrow balance AND let you stay in your home as log as you need to, this should ALWAYS raise a red flag. Sometimes this is okay; but be aware that sometimes it isn t. You may want to interview at least 3 (or more) companies. You must feel comfortable with the person that you meet because if they do not come through with the purchase of your home it will really leave you with the huge problem you were trying to avoid. If an investor tells you that they can pay cash for your home in a few days, ALWAYS ask to verify that they have (or can quickly get) the money to do so. This may be a little uncomfortable for you to do, but you MUST PROTECT YOURSELF by making sure they have the funds! 21

22 5. Bankruptcy - Bankruptcy is when a person is unable (or unwilling) to pay his/her debts so they seek protection (in the state where they live) from creditors under the Federal Bankruptcy Code. If this is an option you are considering you will need to contact a bankruptcy attorney for assistance. You need to ask what types of protection may be available under Chapter 7 or Chapter 13. Always ask what types of consequences (tax, credit, future purchasing ability etc.) come with each option. Finally, another option that you have is basically to do nothing and lose your home to foreclosure. I will assume that if you were going to choose that option you wouldn t be reading this material right now. 22

23 10. Foreclosure FAQs Top 20 Frequently Asked Questions 1. How Do I know if I qualify for any of the above options or alternatives? Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and they can also assist you in interacting with your lender. 2. I received a foreclosure notice, what should I do? Contact your lender immediately. DO NOT IGNORE THESE NOTICES! If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help. Stay in your home for now. You may not qualify for assistance if you abandon your property. Contact a HUD-approved housing counseling agency. Call (800) or TDD (800) for the housing counseling agency nearest you. Or go to If that link is no longer active, go to HUD s homepage ( ) and search for Approved Housing Counseling Agencies. These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge. 3. What is the first thing I need to find out about the state laws where I live? 23

24 You need to find out if you live in a Judicial or Non-Judicial State and if your state has a right of redemption. 4. What are the three foreclosure processes (Judicial, Non-Judicial, and Strict) mean? The primary factor that varies from state to state is what each state uses to secure the purchase of property. Some states use mortgages as a security tool, this follows a judicial foreclosure process. In these proceedings, a lender must prove that the borrower is in default and follows a certain set of steps ultimately ending in court proceedings if the property is not sold in pre-foreclosure. Other states, however, use deeds of trust as the security tool. Deeds of trust result in a non-judicial foreclosure process due to the power of sale clause enabling a trustee to initiate foreclosure without court action. Non-judicial foreclosure resulting from a deed of trust shortens the entire foreclosure timeline significantly. Some states use either one or the other home loan security tool while others utilize both. To see the list of states you can refer to the chart in the Foreclosure Laws and Procedures by State section below. A "strict foreclosure" does not require a sale. A strict foreclosure is when the lender is entitled to take possession of the property directly upon default of the mortgage agreement. 5. What is Right of Redemption (Equitable Right of Redemption, Statutory Right of Redemption)? Right of Redemption is the permission to buy back your property. 24

25 Certain states allow an equitable right of redemption. An equitable right of redemption is where a defaulted property owner redeems the property by paying the lender back the amount in default, plus costs, before the foreclosure sale. Certain states also allow a statutory right of redemption. A statutory right of redemption is where a defaulted property owner has a certain time period (up to a year in some states) to actually redeem their property after the foreclosure sale. To see the list of states that have redemption periods you can refer to the chart in the Foreclosure Laws and Procedures by State section below. 25

26 6. What is the typical foreclosure timeline? This again will vary and will depend on whether you live in a judicial or non-judicial state. Refer to the chart in the Foreclosure Laws and Procedures by State section below. 7. Do I have enough time to stop my foreclosure? Technically up until the foreclosure sale occurs there is still hope. DO NOT WAIT for notice of the sale date before you try to save your home! When you know that you are or will be falling behind on your mortgage payments you need to take action immediately. 8. How long do I have to act? Time is of the essence when you are behind on house payments. Each day that passes makes it that much harder to work out an agreement with your lender that you can live with. This is an emergency situation and you need to take action now. 9. What is the meaning of Time is Of the Essence? It is a statement used in contracts or agreements and it is meant to specify that the time and dates mentioned in contract are very important to maintain and should not be ignored by anybody involved under any circumstances. 10. Do I really stand a chance of saving my home from foreclosure? If you are willing to fight for it, you absolutely stand a chance of saving your home! 26

27 11. Can the foreclosure process continue if I don t pick up the certified letter at the post office? Yes. The foreclosure process requires that notice be sent to the borrowers' address, but it does not require that the borrowers claim it. You should always pick up your mail and read the information because unclaimed certified mail does not stop the foreclosure process. 12. Will my lender allow me to make payments on the amount I am delinquent? Normally, lenders will not accept partial payments of the delinquent amount. However, some lenders loss mitigation departments have options available for borrowers who want to cure the delinquency on their loans. 13. What if I can t save my home and don t leave? If you can not save your home and you don t leave, you will eventually be evicted like a tenant who isn t paying rent. The process will vary depending on your state and sometimes even your county or local region. 14. What is the eviction process? You can be evicted immediately. The length of "immediately" is determined by local procedures, it could be as little as 30 days. If your attempts to save your home from foreclosure were not successful you will have to move. This is not going to be an easy transition for you and your family. Try to look at it as a fresh start and make the best of it. Do not wait for the actual eviction before you leave. If you absolutely gave it your best shot, well then you did the best you could. No one, not even you, can expect 27

28 more of that from you. As difficult as it may be, go ahead and move with your head high. You ve learned a lot and though things didn t work out as you had hoped if you know there is nothing more you could ve done, then just go ahead and move out and save everyone the uncomfortable situation of perhaps having to have someone physically evict you from what once was your home. 15. In foreclosure is it illegal to take appliances and fixtures with you that did not come with the house? It depends. Do not remove anything attached without asking your lender first. Generally speaking anything that is permanently or semi-permanently attached would most likely stay as part of the home (even if it was not there when you purchased the home and you added it later). Personal property examples that are usually okay to remove would be the washer and dryer, the refrigerator and a counter top microwave oven. Examples of items that are usually not personal property and should most likely remain in the home would be kitchen cabinets and countertops, the furnace, and an installed above the range microwave. Again, when in doubt, you need to ask. If you are leaving you certainly do not need additional theft issues to deal with even if you feel certain items are yours. 16. When your home goes through foreclosure do you still have to pay the loan off from the bank? 28

29 The bank is exercising its right to sell the house in lieu of coming after you. Normally the answer is no but you will need to protect yourself and get something in writing from the lender that simply states that they are taking the house back in lieu of coming after you further. 17. How will a foreclosure affect my credit? Foreclosures remain on a credit report for seven (7) years. Foreclosure is a very negative entry that will cause problems if you try to obtain credit (especially another mortgage) in the future because it indicates a potential risk to future lenders. Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. Foreclosure should be avoided whenever possible. 18. Do I really stand a chance of saving my home from foreclosure? Yes, if you are willing to fight. Knowing and understanding what options are available to you is the first step. The most utilized options are bankruptcy, refinance, and reinstatement of the loan. Your success will depend on implementing the proper option in a timely manner. 19. What if I have more that 1 mortgage on the same property? If you have more than 1 mortgage on a property and you are behind on all of your payments, you will have to negotiate with all of the lenders. Even a mortgage lender in the 2nd or 3rd position can initiate a foreclosure upon you. 20. Is there a penalty for paying off my mortgage earlier than originally planned? 29

30 Be aware that some mortgage agreements include prepayment penalties. Some lenders waive the prepayment penalty fee if you sell your home but charge the fee if you refinance your loan. Confirm with your lender to see when a fee would be charged. 21. Who gets the money if the house is sold at auction? Real estate taxes are always paid first. Then payment is made in the order the liens were recorded. So after the taxes the first mortgage would be paid and then 2nd, 3rd mortgages if any. Then any lien holders would get paid, again in the order they recorded the lien on the deed. 11. Foreclosure Laws and Procedures by State The foreclosure process varies somewhat from state to state, and depends primarily on whether the state uses mortgages or deeds of trust for the purchase of real property. Generally, states which use mortgages conduct judicial foreclosures; states that use deeds of trust conduct non-judicial foreclosures. The principal difference between the two is that the judicial procedure requires court action on a foreclosed home. The table below represents current knowledge of which states use mortgages (judicial) or deeds of trust (non-judicial) or both, as well as helpful information regarding other foreclosure procedures particular to each state. Please check with your local county office to verify the accuracy of this information. 30

31 Foreclosure Laws and Procedures by State 31

32 12. Words of Caution Beware of people who will pay you if you sign over your deed. People who say that you don t have to bother checking with your lawyer or your mortgage company before entering into any deal with them. Companies that say they will save your credit if you sign the house over to them. Never be pressured into signing anything you don't understand. Do no sign anything that has blank lines or spaces (that someone could fill in at a later time). If something is blank you can mark a big X through it. Promises that are not in writing. Verbal agreements mean nothing. Do not pay any type of upfront fee for assistance. Remember that most people that are approaching you are more interested in themselves and a potential profit than they are with helping you solve your problems. Only pay your mortgage payments to your mortgage lender. Do not allow yourself to be intimidated by pressure or threats. Beware of any contract of sale where you are not formally released from liability for your mortgage debt. Watch out for a solution that allows you to remain in your home and buy it back over time. Beware of refinancing options that will actually increase your monthly payments. If you're selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information. Be especially aware of marketing techniques from likeminded people or organizations offering you help. For example Christians helping fellow Christians, Hispanics helping Hispanics, Dog lovers helping Dog lovers etc. There has been an increase in scam artists looking to exploit people that share a 32

33 common interest, belief, or social group. Their goal is to gain your trust through a common thread and get you to let your guard down. 13. Your Next Steps You have taken the time reading, researching and educating yourself. I congratulate you for reading through this book and I am hopeful that you feel more confident and better prepared. The below list of is not an OR type of list. What I mean is do not just pick one solution, do not contact only one person, do not reach out to only one agency (government, non-profit, or for-profit) for assistance. The more options you seek, the better chances are that something will workout for you. Normally time will not allow you to try just one thing and if it doesn t work, try something else. It s a good idea to undertake as many options as you can at the same time. In the end, you may even have more than one option to choose from. Organization is important and documentation is vital! Take notes as you are speaking with people. Keep and update a pros and cons list. Keep good records of everything! This means every piece of mail you receive. Always write down the first and last name of every single person you speak with on the phone and what department they work in. If you do not already have it, ask for their toll-free telephone number and make sure you get the person s exact extension. Keep a copy of every letter and every form that you send out to mail, including a copy of the envelope. Also, write down the date you mailed it. 33

34 14. Quick Reference & Review 1. Stay in your home to make sure you qualify for assistance. 2. Don't lose your home and damage your credit history if you can help it. 3. Always begin by contacting your mortgage lender s loss mitigation department. This may take several calls to quite a few departments. (Remain calm and be sure to keep your frustration in check, you can scream as loud as you want AFTER you hang up the phone!) 4. Find a HUD approved housing counseling agency. 5. Contact at least 3 stop foreclosure services, set up at least 1 or more appointments to meet with someone who offers to help. Here you are looking for the type of service that does NOT offer purchasing your home as an option! 6. Cooperate with the counselor or lender trying to help you. 7. Contact and speak with at least 3 Real Estate Agents. 8. Contact and speak with at least 3 Real Estate Investors. 9. Compare and explore every option that each of these different services or people have to offer. 10. Try not to get overwhelmed by the bureaucracy of it all. 11. Make sure you are aware of the Words of Caution in the previous section. 12. Do not sign anything you do not understand. Remember that signing over the deed to someone else does not relieve you of your loan obligation. 13. Go ahead and gather anything that has been sent to you so far. Grab a phone, a pen and a note pad. Pour yourself a glass of water and call your lender. 14. Review the Bonus Items from the Federal Government Agencies of Fannie Mae, Freddie Mac and The Federal Trade Commission. 15. Ask Questions! What are the consequences of your decisions? 16. How will your future ability to borrow and your credit report be affected? What if any, are the tax implications? Does this relieve you of all unpaid debts? 17. Take Action! 34

35 If you decide for whatever reason that you are going to do nothing and to let the foreclosure process continue then my suggestion for you is to start packing, round up some people to help you move and find a place to live. 15. Final Thoughts My purpose of writing this book was for you to NOT choose the option of packing, at least NOT without a fight. I have done my part to provide as much information as I can. But ultimately the choice of whether to fight the foreclosure process or not is only yours. I know you are interested in fighting for your home otherwise you would not have even bothered to purchase this product, much less read it to the end. As I ve said before, unfortunately as much as I d like to I can not guarantee that you will be successful in your quest to stay in your home. But I can guarantee that if you do NOTHING, there s 100% chance you will lose your home. Finally, celebrate every single little success throughout this process (a piece of mail you opened that you would have normally ignored, a returned phone call you made, an that you followed up on etc.), this will help to keep you going and keep you strong. Stopping Foreclosure can be done, but you MUST TAKE ACTION NOW! 35

36 Appendices: Department of Housing and Urban Development (HUD) U.S. Department of Housing and Urban Development 451 7th Street S.W., Washington, DC Telephone: (202) TTY: (202) Find the address of a HUD office near you Appendix I. - How to Avoid Foreclosure Appendix II. - Help for Homeowners Facing the Loss of Their Home Appendix III. - Pre-foreclosure Sale FAQs Appendix IV. - Special Forbearance FAQs Appendix V. - Deed-in-Lieu FAQs Appendix VI. Glossary Appendix I. How to Avoid Foreclosure The guidance below (and in the "How to Avoid Foreclosure" pamphlet) is applicable to homeowners with FHA Insured loans. While a good deal of this information may apply to all homeowners in danger of losing their homes, not all of the foreclosure avoidance tools mentioned may be available to you if you have a VA or conventional loan. Additionally, HUD/FHA does not have any Loss Mitigation oversight over VA or conventional loans. Please contact your lender or a housing counseling agency. Q: What Happens When I Miss My Mortgage Payments? Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe HUD an additional amount. Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible. Q: What Should I Do? 1. DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are 36

37 having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help. 2. Stay in your home for now. You may not qualify for assistance if you abandon your property. 3. Contact a HUD-approved housing counseling agency. Call (800) or TDD (800) for the housing counseling agency nearest you. These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge. Q: What Are My Alternatives? You may be considered for the following: Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan. Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount. Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. You may qualify if: 1. your loan is at least 4 months delinquent but no more than 12 months delinquent; 2. you are able to begin making full mortgage payments. When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property. Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan. 37