Foreclosure FAQ’s
1. What is foreclosure?
The legal process that banks and mortgage companies use to force the sale of your home to repay a debt; usually the mortgage on your home. Even if one payment is missed the lending institution can take the property back and then sell it to repay the money owed them. A foreclosure notice is typically filed after three or four payments are missed.
2. What is the foreclosure process and how long does it take?
Each state governs the foreclosure process differently. As a minimum, the law requires that the borrower receive sufficient warning or notice before the foreclosure can take place. Other rights and responsibilities may be outlined in the mortgage or loan documents you signed when you purchased the home.
3. I would rather sell my home than lose it to foreclosure, is this possible?
Yes! It’s called the Compromise Sale or the “Short Sale” and a foreclosure notice does not prohibit you from selling your home as long as you own it. However, you must act quickly and select the right real estate professional, one well versed in these type of sales.
4. What happens when the bank forecloses?
While the actual process may vary from state to state, typically a trustee is appointed and announces the sale by aution of your home by informing the public. The usual announcement includes the name of the lending institution, who the borrower(s) is/are, the amount of overdue debt, and your total indebtedness.
After a specific period of time, the trustee opens the bidding process, (in some states your lending institution may do this). Then, either someone purchases the property or it reverts back to the lending institution. Once the property is sold or reverts back to the lender, the eviction process begins!
5. What does “Short Payoff” mean?
Your lender agrees to accept less than the total owed in exchange for releasing the mortgage as a lien on the property. (it’s also called pre-foreclosure sale, short sale, pre-sale and compromise sale).
6. Can they sell my house for less than what I owe?
Yes! Banks are not in the business of owning or selling homes and they do not like to foreclose on property because it’s expensive and they usually lose money. They must prepare the home for sale, hire a real estate agent to sell it, and until it’s sold, it remains a non-producing asset on their books. The lending institution would rather take a loss on the home than have it remain on their books as a non-producing asset.
7. They sold my house for more than I owe, do I get any money?
Yes! Any amount over the total debt owed will be paid to you upon the transfer of ownership (closing).
However, if they sell it for less, the balance is called a deficiency and your bank can use whatever means they deem necessary to collect the outstanding balance. Most states treat this as an unsecured debt (just like credit card debt) and give the bank (or creditor) the same legal rights to pursue you, usually by suing you in court.
8. Who can bid on my home at the auction?
Anyone, including yourself can bid at the auction. However, some states require a cashiers check in the amount of the purchase price or bid, some states require a deposit and the ability to fund within a specified period of time as required under the terms of the contract.
9. What happens if no one bids on my property?
The bank simply takes possession of your property, through eviction if necessary, and then hires a real estate agent to sell the property.
10. How does a Sheriff’s Sale work?
If you fail to pay your property taxes the city to whom the taxes are due can foreclose through a Sheriffs Sale. Some cities will use this option after one year of non paid taxes while other cities may wait 3 years or more. Additionally, any creditor or lien holder can use this option once you default on a loan. However, any overdue taxes are paid first, then first, second, etc. mortgages are paid before any other leins or judgments can be paid.
11. If I’m evicted, how many days notice do I get?
Typically you’ll get 3 days notice! Most banks will start the eviction process immediately after the foreclosure process but the FHA, HUD and VA are usually much slower. If you own rental property, your tenants will normally be given 30 days notice. If you need more time than given, contact your lending institution immediately to ask for an extension.
12. I’ve missed a few mortgage payments, now what happens?
Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home.
When the actual foreclosure happens you must move or you’ll be evicted anyway. Also, you may still owe the lender if they sell the house for less than you owe. You do have several options but because foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future, you should avoid foreclosure it if all possible!
13. I received a foreclosure notice, what should I do?
Contact your lender immediately, explain your situation and why you are having trouble making your payments. Provide them with your monthly income and expenses . . . be honest! Do not not ignore the letter!
Do not move out of your home! If you do, it may be considered abandoned and cause you to not qualify for assistance.
Contact a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 or go online for the housing counseling agency nearest you. These services are usually free of charge.
If you bought your home with a Veterans Administration (VA) guaranteed loan, see Veterans Services for more information or call the VA office nearest you.
14. What options do I have once I’ve received a foreclosure notice?
The most popular options are:
Special Forbearance
Your lender may be able to arrange a repayment plan based on your financial situation. Your lender may even provide for a temporary reduction or suspension of your payments. You may qualify for this if:
You have recently lost your job or source of income or;
You had an unexpected 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 but your net income is less than it was before the default (failure to pay).
Partial Claim
Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current.
You may qualify if:
your loan is at least 4 months delinquent but no more than 12 months delinquent;
your mortgage is not in foreclosure; and
you are able to begin making full mortgage payments.
When your lender files a Partial claim, HUD 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 will be due if you sell or leave your property, or when your mortgage matures.
Pre-foreclosure Sale
This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating.
You may qualify if:
the “as is” appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value;
the loan is at least 2 months delinquent prior to the pre- foreclosure sale closing date; and
you are able to sell your house within 3 to 5 months (depending on what your lender agrees to).
An additional benefit to this option is the assistance you will receive with the seller-paid closing costs.
Deed-in-lieu of foreclosure.
As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but it will help your chances of getting another mortgage loan in the future.
You can qualify if:
1. you are in default and don’t qualify for any of the other options;
2. your attempts at selling the house before foreclosure were unsuccessful; and
3. you don’t have another FHA mortgage in default.
Bankruptcy
Consider this option carefully.
15. Who gets the money when the house is sold at auction?
First, all real estate taxes are paid. Then first, second, third etc., mortgages are paid. Next comes any lien holders or attaching creditors.
16. What if my home has already been foreclosed on?
If the foreclosure date has already passed, a representative from the bank will contact you to discuss your options. If you have a notice from us that your home is now owned by the bank, contact us immediately so we can discuss your options with you.
Download the Owner Occupant Certification Form by clicking here.