Question:  How does the foreclosure process work?

Answer:  The process of foreclosure can be rapid or lengthy and varies from state to state.  Foreclosure can technically start after the first missed payments but most banks allow a grace period for missed payments.  This is especially true now with so many people falling behind on their loans.

After your first missed payment becomes 30 days or more late, you'll start getting calls from your bank.  In nearly all cases they will demand a full monthly payment (plus any applicable late fees) to bring the loan current again.  They will almost never accept partial payments.

Typically, once you get three months behind, the bank will send you a Notice Of Default and file foreclosure papers in court. The court will send you a letter demanding payment, and you'll need to respond in the time they give you (typically 20-30 days) to avoid foreclosure.

If you don't pay, the suit waits for the judge to make a decision about allowing the mortgage company to go forward with selling the property. After the judgment comes down the sheriff will send a deputy to your home to evict you if you haven’t already left.

The whole process can take about 180 days or six months.  However in some states the process can take even longer.

Question: How much time do I have after a Notice of Default is filed?

Answer: Normally, it is ninety days plus twenty to twenty five days for publication. But it would be wise to read all correspondence carefully, and or contact an attorney, to make sure what your rights are and what the time frame is in your situation.

Question:  What are the stages of foreclosure?

Answer:  The foreclosure process is not very difficult to understand. There are several stages during which you, the homeowner, has an opportunity to bring the loan current and avoid foreclosure.

After about three to six months of missed payments, the bank (lender) orders a trustee to record a Notice of Default (NOD). At the County Recorder’s Office. This puts you on notice that your are facing foreclosure and starts a reinstatement period that typically runs until five days before the home is auctioned off.

If the default isn't corrected (the loan must be brought current) within three months, a foreclosure sale date is established. You will receive a Notice of Sale, and this notice will also be posted on the property. In addition, the Notice of Sale is recorded at the County Recorder’s Office in the county where the property is located. Finally, this Notice of Sale is also published in newspapers local to the county in question over a three-week period.

The foreclosure Trustee Sale typically occurs on the steps of the county courthouse in which the property is located. The time and location of this sale are designated in the Notice of Sale. At the Trustee Sale, the property is auctioned in public to the highest bidder, who must pay the high bid price in cash, typically with a deposit up front and the remainder within 24 hours. The winner of the auction will then receive the trustee’s deed to the property.

Question:  What is a Foreclosure Auction?

Answer:  At an auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney conducting the sale, for the lender.

If this occurs, and the opening bid is not met, the property is deemed a REO or Real Estate Owned. This typically occurs because many of the properties up for sale at foreclosure auctions are worth less than the total amount owed to the bank or lender.

When you purchase property at a foreclosure sale, all junior liens other than property taxes are wiped out. Priority of liens is determined by the date of recording. When you purchase a REO aka. Bank REO, you will typically receive the property with a clean title.

Question: Can I stop the foreclosure?

Answer:  Yes. You can bring your mortgage payments current along with all late charges, foreclosure fees, taxes, and insurance premiums.

If you are unable to do so, you can contact your lender and try to negotiate a plan to modify your payments but don't wait until the last minute to do this.

Other options include refinancing, selling your home and or filing for bankruptcy.

Question: If I file for bankruptcy can that stop my foreclosure?

Answer: Not necessarily.  But bankruptcy can temporarily stop the foreclosure proceedings and give you time to explore other options or work out a plan through the courts.

Question: What is a Short Sale?

Answer:  A short sale is when a mortgage lender or bank agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. 

Question:  Will a Short Sale save my credit?

Answer:  No.  The credit scoring system considers short sales and foreclosures the same and thus will damage your credit equally. Both will appear on your credit as not paying the account as agreed. The short sale could even leave you with the same financial liabilities.

Question:  Could I end up owing the IRS if I foreclosure or exercise a short sale?

Answer:  In the past, this was never an issue, because homes almost always sold for more than the loan amount. So when banks foreclosed, usually they were getting back more than they loaned out.

But because a lot of homes are selling for less than what you paid for it, the IRS could see the difference as "income."

That means you could have to pay taxes on it. Congress did pass a law so the IRS wouldn't come after people for that difference on their personal home, but attorneys say that law is less clear for investment properties or if you also have a home equity loan.

Question:  Will foreclosure limit me from ever buying a home again?

Answer:  No.  It’s a myth that a foreclosure will ruin your credit forever. In fact, you can rebuild your credit again in as little as two years and qualify for a home purchase.  It is likely however, that you’ll be required to put down a substantial down payment. 

 
Question:  Do banks profit from foreclosure?

Answer:  In most cases – no.  This is especially true now with many areas seeing a rapid decline in  real estate values.  The bank is often left with the borrower owing more than the house is worth.  Plus, the bank must pay for any damage left by the often bitter homeowners and carry insurance on it until it can be resold.