Home foreclosure rates are fast on the rise. Foreclosure in the news reports that the national crisis has sprung from a number of factors: people signing up for interest-only or graduated interest/adjustable rate mortgages, and common unfortunate life factors that deem homeowners unable to make monthly mortgage payments. Divorce, unemployment, illness, etc. are all common reasons for defaulting on your loans. Whatever your particular predicament that has led you to imminent foreclosure, here is a quick run-down on all you need to know about the foreclosure process: from foreclosure tips/advice, the foreclosure process, and what to watch out for.

Foreclosure on your home can — aside from popular belief — occur after just a few missed payments, and can leave you homeless shortly thereafter. What is significant to recognize though, is that approached correctly, a homeowner about to be foreclosed upon can save their home by acting quickly, contacting their lender, and finding a lawyer to represent them. If nothing is done, here is how the foreclosure process will work out:

• Once you have defaulted (each lender has a different definition of default: from 1-6 months typically) on your mortgage payments, you will be sent a certified “Intent of Foreclosure” document from your lender, with dates of their intended action.
• Under law, the lender is forced to publicly announce this intent of foreclosure — typically, an announcement will be made in the local newspaper.
• You will typically be given a small window of time to contact them to make full repayment of your mortgage — as noted in the letter. This is the time that, if you have any way of paying them, you should. Call relatives, tap savings accounts, etc. — anything you can do to avoid court and subsequent auction of your home is recommended now.
• If repayment is not scheduled, the lender will then take you to court, where the judge will render your home foreclosure valid; and a date for public auction of your home will be scheduled. Note: Only in the rarest of situations will the judge not find for the lender.
• Once your house is auctioned, you will be required to leave your home. Depending on the auction price, you may recoup home equity; or conversely, have to pay a deficiency. Your lawyer should make you aware of both possibilities.

What To Do To Avoid Foreclosure

If you have done any research about foreclosure (articles about foreclosure, industry reports, etc.), you know that the first and most significant word of advice from anyone who has gone through a home foreclosure is to contact your mortgage lenders as soon as you fear you may default on your mortgage. Even if you have already defaulted on your mortgage payments, calling your loan institution never hurts. More often than not, the lender will want to work with you, so that they can recoup their money and avoid the timely and expensive concerns of court. In most cases, mortgage lenders want to avoid court as much as you do; so make sure to call them and ask about any sort of programs, advice, and breaks they may be able to help you with to keep your home. It is always better to confront the issue, especially if your home is at stake.

Secondly, research and contact an attorney specialized in foreclosure and debtors rights to save you from any third party foreclosure help scams. A good foreclosure attorney will make you aware of your rights, what to expect in home foreclosure, and also how to best treat the situation of foreclosure. An attorney will save you a lot of grief and concern, and do everything in their power and expertise to help you mediate with your lender, and keep your home.

If you’re reading this, my guess is you’ve found yourself on the brink of your own home foreclosure. Perhaps, you were unfortunate enough to have bought your home with an adjustable rate mortgage. Maybe you’ve recently had your income greatly reduced due to unemployment, divorce, or natural disaster. Whatever the reason, now is the time to learn exactly how to save yourself — and your home — from foreclosure. In this article, we will discuss all you need to know about hiring the right lawyer, scams to watch out for, etc.; in short, how to defend your home, yourself, and your credit from foreclosure before it’s too late.

Hiring a Lawyer

It is best to start seeking out a foreclosure attorney before you have missed too many mortgage payments and gone into serious default; as they can protect you from making unwise decisions or becoming victim of the many foreclosure help scams that have sprung up in the wake of the national foreclosure crisis. Here is how to find the best attorney to help:

• Instead of enlisting the services of a TV or yellow pages lawyer — without knowing their reputation or credentials — your best stop is to call or email your local bar association for a list of reputable attorneys that could help.
• Second, contact your local bankruptcy court. Bankruptcy court offers a great directory of repossession, foreclosure, and debt lawyers, who are best acquainted with your particular plight.
• Next, once you have chosen a few attorneys for consideration, make appointments for consultations. Know that there is typically a fee associated with an attorney consultation.
• Lastly, interview each attorney thoroughly on accreditations, references, common protocol, etc., and cross-reference from one consultation to the next. Remember, to trust your instincts, and watch out for any lawyer that has too much to promise you. Let them realistically and in detail, convince you that they can best address your needs.

What To Expect

Once, you have found the right attorney, rest assured that you will be, for the most part, safeguarded from any foreclosure scams offered to vulnerable homeowners such as yourself. So, what else can you expect in the midst of imminent or future foreclosure?

• Once you fall behind in payments, even a month or two, you will be mailed an “intent of foreclosure” certified document from your mortgage lender. Public notice in the newspaper is given, as by law.
• From here, you can contact your bank or lender, as your attorney advises, and, if possible, make full payment of your defaulted mortgage. Frequently, the bank or lender will accept partial payment as long as it is the majority of what is owed.
• However, if you are unable to pay at all, the bank will take you to court. From here, the judge will deem the intent to foreclose worthy, and schedule a public auction date for your home.
• If your home equity is more than the auction price, you may be able to get some of the money back. As always, go over everything with your attorney. Conversely, if the auction price is more than your home equity, you may be forced to pay the difference.

The very best advice to take if you are defaulting or about to default on your mortgage is to contact a lawyer immediately. They will make you aware of your options, and in many cases — depending on how far you are in default — they can help you to best approach your lenders to come to some sort of payment agreement to avoid court and foreclosure altogether.

What is a new mortgage? A new mortgage occurs when the borrower refinances their mortgage with a new lender. This allows for the loan to be brought current immediately and can stop foreclosure. However, be sure that you have also allowed for the foreclosure fees, which you will need to pay back to the bank.

What if I have a second and third mortgage on my home that is going through foreclosure? If you find a way to stop the foreclosure and keep your home, you will still be responsible for any additional liens on the home until they are paid in full. However, if the home is sold through the foreclosure process, all liens on the home may transfer to the buyer and become their responsiblity. Be sure to make any buyer aware of any additional liens that are on your home.

Why do I need to shop around for my mortgage? Each lender has their own fees, loan requirements, interest rates, etc. It is in your best interest to get quotes from several companies to ensure you are getting the best mortgage situation for you.

What is mortgage foreclosure? Mortgage foreclosure means that the deed can only be foreclosed with court action. This type of foreclosure is more commonly referred to as judicial foreclosure.

What is bankruptcy? Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors.

Can I file bankruptcy to stop my foreclosure? This varies from state to state and also depends on the type of bankruptcy you are filing. If you are filing Chapter 7, there is little to no chance that you will get to keep your home; however, it may buy you some time to find new living arrangements. If you are filing Chapter 13, you may be able to keep your home by making new payment arrangements to pay off your debt over the next 3-5 years. For either situation, be sure to consult with your attorney for legal advice that pertains to your state.

What do I do to begin the bankruptcy process? To begin the bankruptcy process, you will need to construct a complete list of your debts, both past and present. You will need this documentation when filing the petition. You will then file these documents with the bankruptcy court and pay the filing fee.

Can one spouse file for bankruptcy without the other? Yes, but the other spouse may be held responsible for the debt. Research this option carefully before proceeding.

Who can file bankruptcy? Generally, any individual or business that owes money to a creditor can file for bankruptcy.

I have filed bankruptcy in the past, can I file again? Yes, as long as the required amount of time has passed. There are limitations to how soon a person can file for bankruptcy after filing previously, usually 4-7 years. Be aware of the consequences of filing for bankruptcy, especially multiple times as it can really damage your credit and ability to receive future loans, credit, etc.

What is foreclosure? Foreclosure is the legal proceeding in which a mortgagee, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption. Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan.

How long does the foreclosure process take? The timeline of foreclosure is determined by the laws of your state. Each state has a specific process that the banks/lenders must follow. The process can take anywhere from a couple of months to over a year. To learn more about your state’s foreclosure laws, see our page on state laws.

What determines a default? Default occurs when the borrower does not make the required mortgage or lien payments as agreed to. Once your mortgage is 3 months behind, you are in danger of receiving a Notice of Default, which begins the foreclosure process.

I just received a Notice of Default, can I still save my home? Yes! You can still save your home, but you will need to act quickly. The Notice of Default is an official warning that they are beginning the foreclosure process. See our loss mitigation pages for more information about your options.

What is a short sale? A short sale is when the bank agrees to accept less than the total amount owed. This typically occurs in situations where the market value has dropped and the homeowner is unable to sell their home to pay off the entire amount owed. Beware! There can be serious tax consequences from choosing a short sale.

Foreclosure is the legal process in which a homeowner’s property is taken by a mortgage company, bank, or other creditor to satisfy a debt. It results from non-payment of the mortgage and/or property taxes. The homeowner loses the rights they had to the property.

Types of Foreclosures

There are three main types of foreclosure used in the United States:

• Judicial Foreclosure - The court supervises the sale of a property in default. The profits are used to pay off the mortgage that has been defaulted, then any other liens. If there are any funds remaining, they are given to the mortgager/borrower.
• Power of Sale - This type of sale is allowed in some states and allows for the lender to sell their home without the supervision of a court. While faster than Judicial Sale, the order in which profits are distributed remains the same with the mortgager receiving the first payoff.
• Strict Foreclosure - Strict Foreclosure used to be the most common type of foreclosure, but is now only available in a few states. With this type of foreclosure, a suit is brought by the mortgagee and if successful, a court orders the defaulted mortgager to pay the mortgage within a specified period of time. Should the mortgagor fail to do so, the mortgage holder gains the title to the property with no obligation to sell it.

Mortgage Foreclosure Process

Foreclosures take time, but most follow the same general steps outlined below. Properties can be searched for at each step. This information is also available in newspapers and court records.

1. Notice of Default - When a mortgagee falls behind on payments, the bank sends a “Notice of Default.” At this point, the homeowner can still work with the lender, but must take action quickly to rectify the situation to avoid foreclosure.

2. Notice of Trustee Sale - Three months after the Notice of Default, lenders can make an announcement they are putting the property up for auction. Time is limited, but the homeowner may still be able to fix the default and keep their home.

3. Most homes receive no bids at the auction and are “sold” to the lender. These become bank-owned properties and are quickly sold to cover the amount owed on the mortgage.

Consequences of Foreclosure

The consequence of foreclosure can be severe and should be carefully avoided. In addition to losing your home, having a foreclosure on your credit report can make it difficult to get another mortgage in the future.

Be aware of tax consequences, as the borrower may owe taxes on the debt that was reconciled by the foreclosure.

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Short-Term Forbearance

A short-term forbearance allows for up to 3 monthly payments to be suspended or a reduction of payments for up to 6 months.

Long-Term Forbearance

A long-term forbearance allows for 4 monthly payments to be suspended or a reduction of payments for up to 12 months.

Benefits of Forbearance

Forbearance is typically used for individuals who are going through a temporary hardship, such as unemployment, and will be able to keep their mortgage current if they can delay a couple of payments. The largest benefit is that it keeps the mortgage from going to foreclosure and saves the borrower’s credit rating.

Options for Military Members

Your lender may offer forbearance options for military members who are having difficulty paying their mortgage. Some lenders are allowing active military to apply for standard forbearance with their active duty orders as their only documentation of hardship. This speeds up the process tremendously. They are also reporting military indulgence rather than forbearance to credit bureaus to protect credit history. Contact your lender and ask about their options and how they will be reported to the credit bureaus to see if this may benefit you.

HUD Special Forbearance Information

The HUD Special Forbearance Initiative was started in 2002 to help borrowers who are unemployed to avoid foreclosure and keep their homes. This program is for borrowers whose mortgage payments are at least 3 months but not more than 12 months delinquent. Also, the mortgage cannot be in foreclosure at the time the agreement is made. There are two types of HUD Special Forbearance options:

Type I - Installments for this option are based on the borrower’s ability to pay. There is a minimum duration of 4 or 6 months to repay the arrearage depending on the situation. This option allows the borrower to prepay the deliquency at any time.

Type II - This option can be used in situations involving unemployment when a good chance of future employment is present. The loan must be delinquent at least three months, but no more than twelve months. The borrower must verify the reduction in income or increase in living expenses along with their ability to make payments according to the new plan.

HUD offers more details on the two types of HUD Forbearance.

Am I Eligible for a HUD Special Forbearance?

To qualify for HUD Special Forbearance, you must:

• Have a Federal Housing Administration (FHA) insured mortgage
• Have a good payment record and stable employment history prior to default
• Be able to verify loss of income and/or increase in living expenses
• Be actively seeking re-employment
• Be an owner-occupant, and the home must be your primary residence during the term of the Special Forbearance Agreement.

Foreclosure properties are typically named after their stage or ownership. Each type of property has it’s own characteristics and requirements for purchase. When searching for foreclosures, it’s important to understand where the property is in the foreclosure process and/or who is the current owner of the property so you will know how to proceed.

Pre-Foreclosure Properties

A pre-foreclosure is a property in which the homeowner has received a notice of default from their lender for defaulting on the loan payments. These properties are in the beginning stages of the foreclosure process, and thus still belong to the homeowner. The home has not yet gone to auction, so if you are interested in purchasing the home you will contact the homeowner directly.

Distressed Properties

Distressed properties are properties that need to be sold fast for many reasons: pre-foreclosure, foreclosure, bankruptcy, tax liens, etc.

REO Properties

An REO is “real estate owned” by the mortgagee. These properties were typically not sold at the foreclosure auction, so they now belong to the lender. Lenders are not in the business of managing real estate so they are usually interested in quickly selling the properties. REOs are sometimes called “special” or “non-performing” assets. For more information on buying REO Properties, visit our REO page.

VA Foreclosures

The U.S. Department of Veterans Affairs (VA) is a federal agency that guarantees mortgages to homeowners who have served in the military. When lenders foreclose on these properties, the VA acquires them and offers them for sale to the public.

Auction Properties

Auction properties are homes that have reached the point of auction, usually held on the courthouse steps. The property owner was unable to sell the property or pay their debt before the date of auction. The auction is open to all bidders and is sold to the highest bidder. The auction is usually conducted by the foreclosure attorney who is selling the property on behalf of the lender.

Short Sale Process

Some lenders won’t accept a short sale because they are “shorted” and have to accept less than the total amount due. If your lender does agree to a short sale, they will have their own requirements/procedures. Here is an example of the process you will likely follow and items you may be expected to submit:

1. Call the lender to find out who handles short sales.
2. Write a letter of authorization to allow the lender to discuss personal information about your loan with parties involved.
3. Have an estimated closing statement prepared by a closing agent or lawyer to show how much you expect to make on the sale.
4. Items you will most likely need to submit:
• Hardship letter to offer details as to why you are unable to pay your mortgage
• Proof of income and assets
• Copies of bank statements
• Comparative Market Analysis to validate that the property value has fallen
• Purchase agreement when you have a prospective buyer
• Listing agreement to verify what has been included

Submission of all these items and following the process does not guarantee your lender will accept the buyer’s offer. You will have to work with your lender to come to a mutual agreement.

Short Sale Consequences

While a short sale may stop foreclosure there are consequences to the seller. One important fact to remember - the seller never profits from a short sale. The following are other consequences from short sales:

Tax Consequences - The amount that the lender is shorted is considered income for the borrower and is taxable. You may receive a 1099 from your lender for the shorted amount.

Credit Report - Short sales are noted on credit reports and will affect your credit rating. Even though a short sale doesn’t seem as bad as a foreclosure, the drop in the FICO score is the same. Damage to your credit score may make it difficult to get approved for future homes and other major purchases.

Paying Back the Difference - In some cases, your lender may legally require you to pay back the difference of the loan and what your house was sold for. Contact a lawyer to find out if you are protected from this or if you will be required to pay.

The mortgage holder can usually initiate foreclosure at a time specified in the mortgage documents, typically some period of time after a default condition occurs. Two main types of foreclosures exist: judicial and non-judicial, or power of sale.

Judical Foreclosure

Foreclosure by judicial sale, also known as judicial foreclosure, involves the sale of the property under the supervision of a court. The proceeds from the sale are used for the following: first, to payoff the mortgage, second, payoff any additional lien holders, and finally, any remaining funds go to the borrower. As with all legal actions, all parties must be notified of the foreclosure, but the requirements of notification vary from state to state.

Non-Judicial Foreclosure

Non-judicial foreclosure, or foreclosure by power of sale, is allowed by many states if there is a power of sale clause included in the mortgage. This process involves the sale of the property by the mortgage holder without the supervision of the courts. It is slightly less complicated and therefore quicker than foreclosure by judicial sale. The proceeds from the sale are used in the same order with the mortgage and any additional lien holders receiving the funds from the sale first.

If you are facing foreclosure or are currently going through foreclosure, it’s imperative that you know how the law works in your state. You need to be aware of what rights you have as a homeowner and what rights your lender has as well. Review your mortgage agreement carefully and click on  your state below to find out more details about the laws in your state.