What Is a Foreclosure?
Foreclosure is a legal proceeding started by a lender to repossesses the collateral in case of loan default. The concept of foreclosure has been around for centuries.
In the past, the law gave automatic ownership of the property to the lender. Luckily, today, the numerous state laws and regulations develop over the year. Home borrowers are given time to pay off mortgages before their properties are taken away. Although every state may have their own variations, the basic principle of foreclosure law remains the same.
#1 In the United States, the procedure of foreclosure may vary from state to state, but there are several stages which the homeowners has a chance to pay back the loan to avoid foreclosure.
#2 After the loan payment is missing for approximately six months, the lender may order a trustee to record a Notice of Default (NOD). The home borrower will be notified of foreclosure. This begins a reinstatement period.
#3 If the loan is still in default within 3 months, a foreclosure sale date is set. “Notice of Sale” will be posted on the property and is recorded at local County Recorder’s Office. The Notice of Sale will then be published in local newspaper for at least 3 weeks.
#4 Finally, the property will be auctioned to the public for the highest bidder. The highest bidder must pay the high bid price in cash. Generally, he/she must deposit up front cash and pay the rest within twenty four hours. After the payment is made in full, the auction winner will get the trustee’s deed to the property.
Timeline for Foreclosure
Foreclosure refers to a legal process which allows a creditor to recover a defaulted loan by repossession of the property. Typically, foreclosure process can end in one of four ways:
#1 Home borrower pays the default loan during a grace period, and the home is reinstated to the home borrower.
#2 Home borrower sells the home to a third party during the grace period. Then home borrower use the money from the sale to pay off the loan to avoid a foreclosure.
#3 The property is sold to a third party at the end of grace period.
#4 The creditor takes ownership of the property.
Timeline for foreclosure can be different in each state.
By law, the process of foreclosure technically begins when a borrower misses the first payment, but most lenders usually do not begin the process until 3rd payment is missed.
Here is an example of foreclosure timeline.
Day 1: Record Notice Of Default
Within 10 Business Days: Notice of default is published.
Within 1 Month: Notice of default is mailed.
After 3 Months: Sale date is set.
25 Days Before Sale Date: Notice of Sale is send to the I.R.S.
14 Days Before Sale Date: Record Notice of Sale.
5 Business Days Before Sale Date: Right to reinstate the loan expire.
Sale Date: Property is sold at the auction.
Number of days it takes to complete a foreclosure
Understanding The Foreclosure Timeline
Difference Between Bankruptcy and Foreclosure
Bankruptcy refers to inability of an individual or organizations to pay their lenders or creditors. In most situations, debtor will voluntary initiate bankruptcy, due to impairment of ability to pay back the debt, but in some circumstances creditor may file a bankruptcy petition against a debtor.
In the United States, bankruptcy is categorized into six types under the Bankruptcy Code:
Chapter 7: Basic liquidation for individuals and businesses.
Chapter 9: Municipal bankruptcy.
Chapter 11: Reorganization or rehabilitation, mainly by business debtors.
Chapter 12: Rehabilitation for fishermen and farmers.
Chapter 13: Rehabilitation for individuals with a regular income.
Chapter 15: Ancillary and other international cases.
Foreclosure, on the other hands, refers to an act of legal proceeding which happens when a property owner can’t make principal and interest payment, leading to the property being sold.
Will Bankruptcy Stop A Foreclosure?
The answer is depending on the situation.
When you file for bankruptcy, creditors are prohibited to collect the debts you owe. This status is called “automatic stay”. In most situations, you will be able to prolong a foreclosure until you have been discharged of bankruptcy. To be able to keep your home, you still must make a deal with your mortgage company. If you are unable to repay the past due amount, you will still loose your home.
The bottom line is if you think you won’t be able to come up with the money to repay the past due amount, you should NOT file for bankruptcy. Many people who file a bankruptcy wish that they had not. In most cases, they end up in a worse position, because filing bankruptcy will remove your negotiation leverage.
Filing Bankruptcy To Keep From Foreclosure
The financial squeeze left millions of Americans falling behind on mortgage payment. Foreclosure breaks the new records in the last two decade. Many Americans are facing the question:
“Is it better to file for bankruptcy protection or loose my home to foreclosure?
Neither option is going to be easy.
When you file bankruptcy, an “automatic stay” goes into effect. Basically, an automatic stay is an automatic injunction which stops actions by creditors to collect debts from debtor goes into effect.
Unfortunately, however, bankruptcy is not always the right solution for your foreclosure problems. Although an automatic stay may temporally give you protection against your lender, a creditor can get around it by asking the bankruptcy court to lift the stay. For instance, if you file for a bankruptcy with no equity in your house, foreclosure creditor may ask permission from court to proceed with the foreclosure. In this situation, the court is likely to give that permission.
The fact is bankruptcy may prolong your foreclosure. But if you want to save your home from foreclosure, you need to make a deal with the Mortgage Company to repay the past due amount.
Advantage For Filing Bankruptcy To Stop Foreclosure
Your home may be temporarily protected by an automatic stay.
Disadvantages For Filing Bankruptcy To Stop Foreclosure
#1 Bankruptcy will be on your record for ten years.
#2 Your creditor may still find a way to get around your automatic stay.
#3 Filing bankruptcy removes your leverage and control.
#4 You still need to pay back the due amount.
How Can I Stop Foreclosure
A foreclosure is the most terrible experience a homeowner can encounter. Foreclosure can be defined as a legal process using which lenders acquire the home of a borrower who has defaulted with his monthly payments.
However, there are ways where homeowners can still save thousands of dollars, their credit scores and even their homes.
Listed below are some dos and don’ts that homeowners must follow when a foreclosure looms.
#1 Sell the property: If the real prices are increasing, the best way to preserve credit scores is to sell off the property and pay back the mortgage.
#2 Work out a deal: Foreclosure is an expensive process even for the lender. Hence, many lenders do not like to go for a foreclosure. They will be quite satisfied if they get their money back. In case of defaulted loan repayments, it is important to have a discussion with the lender. There might be a feasible solution available which is suitable for both the parties.
#3 File Chapter 7 bankruptcy: When a person files a chapter 7 bankruptcy, assets are liquidated and the debts are completely wiped out.
#4 File Chapter 13 bankruptcy: In this, assets are kept under the supervision of court. Homeowners and lenders are directed to work out a repayment plan depending on the financial status of the borrower.
#5 Short sale/deed of lieu of foreclosure: In a short sale, the bank permits the borrower to sell the property and pay off the mortgage balance. In a deed of lieu of foreclosure, the borrower exchanges his property with the bank. In return, the bank gives up its rights against the borrower.
#6 Walk away from the home: This is the last and final step a homeowner should take. However, one must consult an attorney before taking such a drastic step.
#1 One way of avoiding a foreclosure is to take a second mortgage loan using the equity available on the property. One should never go for a second mortgage loan with high interest rates. This is going exacerbate the problem.
#2 You should never sign your property title to any other private company just to avoid foreclosure.
Recent State Foreclosure Laws
The foreclosure laws may vary somewhat from state to state, but the principal difference can be classified into two categories. States that use judicial foreclosures, and states that use deeds of trust.
States that use deed of trust to purchase property will typically conduct non-judicial foreclosures.
On the other hands, states that use mortgage as an evidence of purchasing will usually conduct judicial foreclosure. The difference is that judicial foreclosures will require a court action on a foreclosed property, but the non-judicial foreclosures do not.
In a judicial system, a lender or creditor must prove that borrower is in default, and lender has tried to resolve the matter with the borrower. Then the lender is taking the matter to the court by contacting a lawyer. The lawyer will file a lawsuit (a lis pendes), if the borrower can not pay off the default. The purpose of a lis pendes is to provide evidence of a loan default and get the court’s approve to initiate foreclosure.
In non-judicial foreclosures, however, the laws are based on the deeds of trust which have the power of sale clause which allows lender to initiate foreclosure process without going to court. Nevertheless, a lender is still required to give a notice of default to the borrower. If the borrower does not respond, then the lender can proceed with foreclosure process.
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Government Loans To Help Stop Foreclosures
Are you of many Americans who struggle with mortgage payment and foreclosure?
If so, don’t feel despair.
Uncle Sam can help.
In response to housing crisis, the Federal Housing Administration offers financial relief with the FHA Secure Refinance Program.
The FHA Secure Refinance program is administered to help homeowners who may face foreclosure, because of high monthly payments. The program will allow delinquent home borrowers to refinance Adjustable Rate Mortgages into a fixed rate FHA loan.
FHA Secure Refinance program is insured by the Federal Housing Administration.
This is proven to be an important advantage. Your mortgage is insured by the government. Lenders tend to be more liberal, because the risk of loan default reduces significantly. Even if your credit history is less than perfect, you can still qualify for the loan. In fact, FHA does not have minimum credit score requirement, they just look at your overall credit history. Therefore, if you are one of the million homeowners who are facing foreclosure, FHA Secure Refinance program might be your answer.
Basic FHA Refinance Program Requirements:
#1 You must have a minimum of three percent cash in your home.
#2 Your loan must be a non-FHA ARM.
#3 Must have a sustained history of employment.
#4 Must have a history of on-time payments before the ARM is reset to higher rate.
#5 Must have a sufficient income to make monthly mortgage payment.
FHA Refinance Program comes with many advantages, but it probably can not help everyone. The program is designed to help home borrower with just a little assistance to cover the expensive ARM interest rate.
Process for Buying Foreclosed Homes
Foreclosure process starts when the creditor sends the homeowner a notifying letter of missing mortgage payment. The law requires creditors to give homeowner at least thirty days before taking action. Only one letter need to be sent.
If the homeowner does not take action to fix the default, then a notice of sale will be posted at the courthouse. The law regulates that the notice must be issued at the minimum of twenty one days in advance of the auction. In many states, the auction will be held on the first Tuesday of the month at the county courthouse.
Experts say, “Indiana, Ohio, and Michigan is three of the best states for housing auction.”
People are loosing jobs in these three states, and rising unemployment correlates too lower real estate values. Last year, the record showed that one county in Ohio had over 10,000 foreclosures, leaving 30% of all house empty.
In addition, there are a number of financial and other considerations before deciding to buy a foreclosed home.
For example, some states like Tennessee have redemption periods where original homeowner can buy back the property.
Someone who can’t make his/her mortgage payments may also owe money somewhere else like unpaid income taxes. These debts may have a claim against foreclosed property. Therefore, it is a good idea for you to conduct what’s called a “title search” before buying.
Still interested? Here are some tips that can help.
Try to buy a house from people who have lived in at least 2 years or longer. The bottom line is the longer someone has lived in a house, the more equity has been built in.
Never buy a home with “no money down.”
Home traps with foreclosure homes
Since the start of the housing crisis, millions of people have stopped swing the mortgage loan payment’s on time. The real estate taken over are placed on auctions, and can be purchased for a much lower price than their market value.
House for a pittance?
A purchase of a property at auction can be a fantastic opportunity.
It could also prove a costly trap.
The current situation is the result of several years, the upturn on the property market, which the home prices increased to huge value. To help Americans the buy more and more expensive homes, the banks began to lend “creative” loans, often a few at a time of another adjustable mortgage rates. When the loans rates went up, many people were unable to pay the monthly payment’s on time. A large proportion of the homeowners must give up to the banks more than their property’s worth.
Every year on the market there are hundreds of thousands of homes taken over by the banks – estimates the National Association of Realtors. Often these are the houses that were taken a loan of adjustable mortgage rates. Often the homeowner loses the creditworthiness and is not able to refinance this loan. At the time of changes for higher mortgage rates , it indicates that the house becomes too expensive and a bank sells it to recover all or at least most of the outstanding credit.
This procedure is called foreclosure home.
A purchase of a home covered by foreclosure listing is not easy. An inexperienced person will face with many traps. Also, the risk associated with the acquisition of real estate by the bank are usually higher than the normal transactions on the secondary market.
Almost all financial advisors will agree – it’s a good time to see what foreclosure homes procedure looks like before we decide to buy a property. To do this we should go for one or even a few auctions before we will decide to take part in it. An auction it not the only way to get a house occupied by a bank, but certainly one of the most risky.
And above all, we should take care of our credit history – then we will make sure that a bank will lend us money for a home. The mortgage rates with fixed value are at low level. However, it would be difficult for a loan because the banks are really careful to lending money. We must also remember that those who had a house before us for some reason were not able to maintain it.
Maybe for us a new house will be too expensive. Do not repeat mistakes of people who could not repay the loan before you.
It should be remembered that a property acquired from someone who is in financial difficulties will often requires considerable financial outlays. If a homeowner does not have the money to pay off the mortgage loan payment’s, it is likely that it not invest also in a property. There are owners who deliberately devastate their building, and the same they “are costing ” on the bank.
An auction is one of the most risky, because in many cases, the bidders are unable to physically visit a property. Yes – a bidding potentially offers the most opportunities, but at the same time it is connected with many dangers. The potential buyers can rarely inspect a house marketed. Frequently also during an auction you have to pay for purchased house in advance. There is also a danger that the previous tenants refuse to move away from the bidden upon house and then you will have to deal with a warrant of eviction.
An alternative to foreclosure homes for sale is the REO (real estate owned). If a house has not been sold at auction – eg. the value turned out to be lower than the debt – a property back to the bank, which will try to sell a property on its own, though not necessarily cheap. In the case of the REO, however, a buyer has the opportunity to inspect a home and insurance of title insurance.
In connection with the risks associated with bidding and time expended, the REO specialists advise financial speaks on their own with the property owners before it goes under the hammer. This procedure is referred as pre-foreclosure. A homeowner will be happy to sell endangered property with a big discount, because pre-foreclosure is reflects negatively on your credit history and involves the risk that the money raised during the auction will not be sufficient to cover the amount of debt owed to the bank. The information about who is in trouble and danger of losing their home can be found by studying the public notices on houses. More information can be found on the websites of companies such as Homeforeclosures.com or HomeForeclosure.com and RealtyTrac. These services are available at a small fee.
A corpse in the closet. There is another danger associated with the foreclosures auctions: there is always a risk that the homeowners are not interested with retention the banking procedures, because they know something about their property that we do not know. This may be, for example, the information concerning the immediate neighborhood, or structural home defects. In this situation many people may pay more to stay almost a year in the building for free (so much start the foreclosure auctions). If they have a little luck on auction – they will get a little money back after paying debts, and a new owner will inherit them trouble. Fortunately, such cases are rare – the most common cause of problems with repaying a mortgage is simply the loss of a job.
Why foreclosure home?
A purchase of an outstanding home is an adventure for people with a lot of nerve, or for investors who are counting on making a good deal. In the current situation on the property market there are many other ways to find good opportunities. The rapid collapse of the boom on the market caused the developers in many regions of the country cut prices, afraid to stay with a large number of unsold homes. New buildings can be bought relatively cheaply, because the businesses want to break free the cash floating in the construction. Also on the secondary market, the conditions are dictated by the buyers, and agents have more homes to show for the customers.
Foreclosure homes for sale requires vision, patience, willingness to live a few months in suspense and stress, and often manual skills to make major repairs.
If the financial benefits are worth such a risk – why not try?