- Understand the causes of foreclosure.
- Review the differences between judicial foreclosure and nonjudicial foreclosure.
- Examine some ways to stop a foreclosure.
The Causes and Effects of Foreclosure
Foreclosures are happening at record rates in America. Unfortunately, many homeowners have already experienced a foreclosure and many others face the grim reality that they can lose their home. Understandably, this is a stressful and disheartening experience.
Foreclosure is the last rung on the ladder. It is not a good thing for you or for your lender. Foreclosure is a complicated process that involves many legal and tax issues. It is important for you to understand the types of foreclosure, how the process works, and how it can affect you.
Causes of Foreclosure
The threat of foreclosure occurs when an inability to make the mortgage payment combines with a drop in property values. Many homeowners have been placed under financial stress due to mortgage loans that adjusted to a higher interest rate or a higher monthly payment. When the interest rate or the payment rose, many borrowers found their mortgage payments were no longer affordable. Other homeowners experienced a loss of income, making it impossible to pay the monthly mortgage payment.
A home mortgage foreclosure is the legal process through which your mortgage lender moves to take your home away from you and selling it to satisfy your unpaid mortgage. Foreclosure is almost always the result of a default on monthly payments.
Foreclosure Process
Your mortgage contract should state exactly how many payments you can miss before a Notice of Default is filed against you and the foreclosure can proceed. As a general guideline, it may take 90-150 days, but could be less in some states. It is important for you to keep in mind your lender very likely will not accept a partial payment on any of your mortgage monthly payments. Unlike a credit card, you cannot mail in a portion of your payment and remain in good standing. Mortgage payments are all or nothing. This also means that if you miss one payment, the next month you have to pay the current month and all arrears to catch up!
At the time foreclosure procedures begin, your lender will file a Notice of Default against you. This notice is recorded at the county recorder’s office in the county where your home is located. You will receive a copy of the notice, usually by Certified Mail. Read the notice carefully. Consider speaking with an experienced attorney if you receive a Notice of Default. It may specify a timeframe in which you are required to respond, if you wish to head off the foreclosure, or other details that a professional will help you understand.
There are two types of foreclosure: judicial and non-judicial foreclosure.
Judicial Foreclosure
Some states require a judicial foreclosure. A judicial foreclosure is a court-ordered, public legal process, the rules of which are set forth in state law. Judicial foreclosure laws vary from state to state. The foreclosure moves, sometimes very slowly, through the civil court system, similar to a lawsuit. Some jurisdictions are swamped with foreclosures, which increases the time it takes your lender to finalize a foreclosure against you. In states using a judicial foreclosure process, your lender does not have a forced power of sale clause, which means that lender must use the state's court system to foreclose.
Non-Judicial Foreclosure
A non-judicial foreclosure happens outside of court, using a procedure specified both by state law and your loan contract. If your loan terms specify that a foreclosure can take place without the need to go through the court system, then your lender can start the foreclosure process in 60-90 days. In that case, you have a fixed period of time, which varies state-by-state, to either sell the home or to negotiate another solution.
In both judicial foreclosure states and non-judicial foreclosure states, if you do not come to an acceptable accommodation with your lender, your lender then can initiate eviction proceedings, kick you out of your home, and auction it to the highest bidder.
You may find it difficult to work things out with your lender, once the situation has reached the level of foreclosure proceedings. Still, it can be possible. If someone can help you financially or if you have a valuable asset to sell, you can stop the foreclosure by paying back all arrears on your mortgage and any foreclosure fees, or required tax or insurance payments.
Stopping Foreclosure
Forfeiting your home can be very hard emotionally. It also requires you to move and change your day-to-day life. You may want to do whatever you can to stay in your home for as long as possible. If there is no feasible way to stop foreclosure proceedings by catching up on your arrears, it makes sense for you to consider filing for bankruptcy.
A chapter 7 bankruptcy, which discharges certain debt obligations, will put the foreclosure on hold. Because a chapter 7 procedure usually only lasts a number of months, it is only a temporary fix. A chapter 13 bankruptcy, which re-organizes your debts, working out repayment terms between you and your creditors may be a more effective solution. Chapter 13 proceedings have payment plans that last as long as 5 years. Once you are under the supervision of the bankruptcy court, your lender needs permission from the court in order to move the foreclosure forward. The level of protection that bankruptcy provides can vary from state to state. Consult with an experienced bankruptcy attorney to learn more about this option.
After a foreclosure takes place, it is possible that you may be left with another problem. If your home sells for less than you owe, you may be financially responsible for the deficiency balance, which is the difference between what you owe and what the lender received in the sale of the home. Learn more about deficiency balances in the next article in this section.
Winter Haven, FL | April 18, 2013
April 18, 2013
I will assume you filed a complete list of your debts and obligations in your bankruptcy petition. You do not mention this, but I will assume your chapter 7 was discharged sometime in 2011 or early 2012, and that your personal liability for the home loan was part of the discharge. Your comment about your home loan's status on your credit reports seems to indicate your personal liability was discharged. If my string of assumptions is correct, then you can walk away from the home, in other words, allow a strategic default, and the lender will have no recourse against you.
Consult with your bankruptcy lawyer to learn if my assumptions are correct. He or she should have explained the mortgage liability issue with you while you were filing out the bankruptcy schedules.
You may not want to default and allow a foreclosure if you have plans to qualify for a home loan in the foreseeable future. That is because mortgage lenders look more favorably on short sales and deeds-in-lieu-of-foreclosure than they do foreclosures.
Maryland Heights, MO | April 17, 2013
April 17, 2013
Also ask your lawyer about your state's laws regarding what information a lender must disclose to a former homeowner/borrower following a foreclosure. Some states have no laws I can find on this matter, and others do.
Haines City, FL | February 10, 2013
February 12, 2013
The key issue for anyone facing a deed in lieu of foreclosure, short sale, or foreclosure is what happens to the deficiency balance. In an ideal situation from the borrower's perspective, the borrower negotiates a zero balance or forgiveness of the deficiency balance. Here, you are at a significant advantage because you reside outside of the US. It is possible legally, though impractical financially, for the lender to pursue you in the UK for a $3,000 debt. Therefore, it is likely the mortgage servicer will huff and puff and threaten to domesticate the deficiency balance in the UK, but the fact of the matter is doing so doesn't make sense.
Hillsboro, OR | December 16, 2012
December 21, 2012
If the reverse mortgage is an FHA Home Equity Conversion Mortgage (HECM), then FHA regulations at 24 CFR 206.125(c) apply when the reverse mortgage borrower dies. 24 CFR 206.125(c) gives an heir the option to satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property. I do not understand why the lender would tell you the rule at 24 CFR 206.125(c) does not apply unless the reverse mortgage here is not an FHA HECM. Non-FHA reverse mortgages are rare, but not unheard of.
You asked about the timing of a foreclosure, and indicated you reside in Oregon. The customary time for a foreclosure in Oregon is about 6 months. See the Bills.com resource Foreclosure Laws For All US States to learn more about your state.
You mentioned qualifying for a mortgage. See the Bills.com mortgage affordability and payment calculators to learn if it is even in the realm of financial possibility to afford the house. Also, read what you need to qualify for a mortgage.
As I mentioned at the start, consult with a lawyer immediately.
August 26, 2012
August 27, 2012
Consult with your bankruptcy attorney to understand which, if any, financial obligations may exist following your bankruptcy discharge, and to learn more about your liability for the home loan. Notice that I made a big assumption at the start of my reply here, and you may be facing different circumstances if your bankruptcy was a chapter 13.
Merced, CA | August 09, 2012
August 13, 2012
You are free to remove anything from your home, including its appliances, fixtures, and cabinetry. It is not a crime to sell a home without its interior doors, or light fixtures, or other items we expect to see in a home.
Regarding eligibility for an FHA loan, the seasoning time that must pass after a foreclosure is 36 months, and 24 months from a bankruptcy.
Regarding foreclosure and taxes, see the Bills.com resource Mortgage Forgiveness Debt Relief Act if the lender forgives the deficiency balance. You mentioned California. See the Bills.com resource California Anti-Deficiency to learn more about laws that might make it impossible for the lender to pursue you for any deficiency balance.
August 06, 2012
August 06, 2012
The bankruptcy had a negative impact on your credit score. A foreclosure will appear on the public record section of your credit reports, and will have a negative impact on your credit score. See the Bills.com article Bankruptcy, Foreclosure & Your Credit Score to learn more.
Centennial, CO | February 02, 2012
February 04, 2012
As implied in your comment, a successful chapter 7 removes the borrower's personal liability for the loan, which causes the home loan to be no longer reported to the credit reporting agencies. See How Is Bankruptcy Shown on a Credit Report? to learn more.
The FHA requires two years of "seasoning" after a chapter 7 discharge to qualify for a new home loan, and three years of seasoning following a foreclosure. Please see the Bills.com resource FHA Loan Requirements and Underwriting Standards to learn more.
Bellerose, NY | February 05, 2012
Louisville, KY | January 19, 2012
January 20, 2012
If you are upside-down and want to stay in the property, consider the HARP 2.0 program.
T/o Webster, NY | November 10, 2011
November 11, 2011
Since you do not qualify under these terms you will not find a mortgage available in today's market. An exception to this might be a hard-money lender, who may offer a loan, but at high rates.
Work on maintaining perfect credit and building up your credit score. Alternatively, if the other party you mentioned can qualify alone for new loan, follow that tactic.
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