James R. Balmforth: Problematic Areas Of Foreclosure

Foreclosure is the process lenders use to take property from borrowers. By taking legal action against a borrower who has stopped making payments, lenders try to get their money back. For example, they take ownership of your house, sell it, and use the sales proceeds to pay off your home loan.

How Foreclosure Works

When you buy expensive property, such as a home, you might not have enough money to pay the entire purchase price up front. However, you can pay a portion of the price with a down payment, and borrow the rest of the money (to be repaid in future years). Homes can cost hundreds of thousands of dollars, and most people don’t earn anywhere near that much annually. Why are lenders willing to offer such large loans? As part of the loan agreement, you agree that the property you’re buying will serve as collateral for the loan: if you stop making payments, the lender can take possession of the property in order to recover the funds they lent you. To secure this right, the lender has a lien on your property, and to improve their chances of getting enough money, they (usually) only lend if you’ve got a good loan to value ratio.

Consequences of Foreclosure

The main problem with going through foreclosure is, of course, the fact that you will be forced out of your home. You’ll need to find another place to live, and the process is stressful (among other things) for you and your family. Foreclosure can also be expensive. As you stop making payments, your lender will charge penalties and legal fees, and you might pay legal fees out of pocket to fight foreclosure. Any fees added to your account will increase your debt to the lender, and you might still owe money after your home is taken and sold if the sales proceeds are not sufficient (known as a deficiency). Foreclosure will also hurt your credit scores. Your credit reports will show the foreclosure, which credit scoring models will see as a negative signal. You’ll have a hard time borrowing to buy another home for several years (although you might be able to get certain government loans within one to two years), and you’ll also have more difficulty getting affordable loans of any kind. Your credit scores can also affect other areas of your life, such as (in limited cases) your ability to get a job or your insurance rates.

How to Avoid Foreclosure

Foreclosure is a last resort for lenders who have given up hope of being paid. The process is time-consuming and expensive for them (but they can try to charge those fees to you), and it is extremely unpleasant for borrowers. So how can you avoid it?

• Communication: it’s always a good idea to communicate with your lender if you’re having financial challenges. Get in touch before you start missing payments and ask if anything can be done. If you start missing payments, don’t ignore communication from your lender you’ll receive important notices telling you where you are in the process and what rights and options you still have. Speak with a local real estate attorney or HUD housing counselor to understand what’s going on.

• Explore alternatives to keep your home: if you know that you won’t be able to make your payments, find out what options are available to you even if you think it’s too late. You might get help through government programs geared towards struggling borrowers. Your lender might offer some kind of loan modification, which would make your loan more affordable. You might even be able to work out a simple payment plan with your lender if you just need relief for a month or two (if you’re in between jobs, or for surprise medical expenses, for example).

• Alternative ways to leave your home: Foreclosure is a long, unpleasant, expensive process that damages your credit. If you’re simply ready to move on (and you want to at least try to minimize the damage), see if your lender will agree to a short sale. This allows you to sell the house and use the proceeds to pay off your lender even if the loan isn’t completely repaid. Your credit will still suffer, but not as bad as it would after foreclosure. If that doesn’t work, another less attractive option is a deed in lieu of foreclosure.

• Bankruptcy: Filing for bankruptcy might or might not help if you’re facing foreclosure. The issues are complex, so speak with a local attorney to get accurate information that’s tailored to your situation and your state of residence.

• Scams: Because you’re in a desperate situation, you’re a target for con artists. Be wary of any unsolicited offers to help you avoid foreclosure, and choose carefully who helps you. Start seeking help from HUD counseling agencies and other reputable local agencies. Know the signs of foreclosure rescue scams.

Foreclosure is generally a slow process. If you miss one or two payments, you’re probably not facing eviction. That’s why it’s important to communicate with your lender if you’ve fallen on hard times – it might not be too late. The details vary from lender to lender and laws are different in each state, so the description below is a rough overview and might not be exactly what you’ll experience, read all of your notices and agreements carefully and speak with an attorney or HUD housing counselor to make sure you know what’s happening. The entire process could take a year or two, or it could move much faster.

• Notices start: once you’ve missed payments for three months, many lenders consider your loan in default. This is when things get critical. You will, of course, receive communications as soon as you miss a payment (or two), and those communications might include a notice of intent to move forward with the foreclosure process.

• Judicial and non-judicial states: Depending on what state you’re in, you’ll have more time (and receive more notices) than others. There are two types of states – judicial states and non-judicial states. In judicial states, your lender must bring legal action against you in the courts to foreclose. This process takes longer, as you often have 30 to 90 days in between each event. In non-judicial states, lenders can foreclose based on the agreements you’ve signed with them, and a judge is not involved. As you might imagine, things move much faster in non-judicial states. In either type of state, you can fight the foreclosure in court in a judicial state you’ll generally be served with a summons, but in a non-judicial state you’ll need to bring legal action against your lender to stop the foreclosure process. Speak with a local attorney for more details.

• Stopping the process: In most states, lenders are required to offer borrowers some kind of a relief to stop the foreclosure process. Whether or not those options are realistic or feasible is another matter. Lenders might say that you can reinstate and stay in the home if you make all (or a substantial portion) of your missed payments and cover the legal fees and penalties charged so far. You might also have an opportunity to pay off the loan in its entirety (which will only happen if you manage to refinance or find a huge source of money).

• Auction and eviction: If you’re unable to prevent foreclosure, the property is made available to the highest bidder at auction. If nobody else buys the home (which is common), ownership goes to the lender. At that point, if you’re still in the house (and haven’t made arrangements to protect the house), you face the possibility of eviction and it’s time to line up new accommodations. Local laws dictate how long you can remain in the house after foreclosure, and you should receive a notice informing you how long you can stay. Ask your former lender about any “cash for keys” incentives, which can help ease the transition to new housing (assuming you’re ready to move quickly).

Facing a foreclosure can be daunting prospect for people in trouble with their mortgages, especially when they are unsure of what to do. Across the country, six out of 10 homeowners questioned said they wished they understood their mortgage and its terms better. The same percentage of homeowners also said they were unaware of what mortgage lenders can do to help them through their financial situation. The first step to working through a possible foreclosure is to understand what a foreclosure means. When someone buys a property, they typically do not have enough money to pay for the purchase outright. So they take out a mortgage loan, which is a contract for purchase money that will be paid back over time. A foreclosure consists of a lender trying to reclaim the title of a property that had been sold to someone using a loan. The borrower, usually the homeowner living in the house, is unable or unwilling to continue making mortgage payments. When this happens, the lender that provided the loan to the borrower will move to take back the property.

How do Foreclosures Relate to Debt?

Some people facing foreclosure find themselves in this position because of mounting debt that made it harder to make their mortgage payments. A foreclosure can add to your financial problems if your state allows a deficiency judgment, which means the borrower owes the difference between what is owed on the foreclosed property and the amount it eventually sells for at an auction. Thirty-eight states allow financial institutions to pursue borrowers for this money. In cases when a lender does not use a deficiency judgment, a foreclosure can relieve some of your financial burden. Although it is a loss when a lender takes the home you partially paid for, it can be a start to rebuild your finances. It is a good idea to work with a financial adviser or a debt counselor to understand what kind of debt you may incur during a foreclosure.

If you are thinking about going into foreclosure, there are a number of things to consider:

• A foreclosure dramatically affects your credit score. Fair Isaac, the company that created FICO (credit) scores, drops credit scores from 85 points to 160 points after a foreclosure or short sale. The amount of the drop depends on other factors, such as previous credit score.

• Get in touch with your lender as soon as you are aware that you are having difficulty making payments. You may be able to avoid foreclosure by negotiating a new repayment plan or refinancing that works better for you.

• States have different rules on how foreclosures work. Understand your rights and get a sense of how long you can stay in your home once foreclosure proceedings begin.

• Look out for scammers hoping to profit from your misfortune. If you decide to work with a company to help you through your foreclosure, get everything in writing and understand the fees and contract involved.

How Long Does Foreclosure Take in Utah?

For many homeowners, foreclosure is an unfortunate reality; and one that’s entirely outside of their control. But how long does foreclosure take? It will actually vary depending on any number of circumstances. The length of foreclosure time is actually relatively flexible. And believe it or not, there may be options available that can help diminish its long-term effects. “What many people don’t realize is that the stipulations of a foreclosure are different from state to state. “Also how you purchased your home, as well as any personal relationship with a lender” can influence the effects of reducing or stopping foreclosure in Utah.

Right of Redemption

Utah law maintains a grace period known as the “right of redemption,” which can allow you to purchase property back during instances of judicial foreclosure (where proceedings occur through the courts; as in the case of mortgages serving as property liens.) Payment is made in full of the sum of the unpaid loan, plus additional costs. Courts can extend the redemption period, in some cases up to two years; but it’s important to keep in mind this only occurs under judicial foreclosure, which is less common in Utah.

You Have Limited Time to Avoid Foreclosure

No news is never good news when you are behind on your mortgage payments. Your bank could be starting the foreclosure process and completing the necessary documents to take your home away from you. You might have already received notification that your home is entering the first phase of the foreclosure process. This does not mean that you will lose your home forever. Many homeowners give up prematurely and do not try to avoid foreclosure because they are not informed of their foreclosure law rights. There is help available. You do have options to save your home. Every day that you wait to seek help reduces your chances of staying in your home. The first step to defeating foreclosure is learning about your rights as a homeowner. You cannot sweep foreclosure letters under the rug and forget about them. Banks are vicious and know that you do not understand the foreclosure process or how to stop it. If you are falling behind on your mortgage payments, foreclosure is not your only options. There are several strategies that can be used to avoid foreclosure and minimize damage to your credit.

• Reinstatement
• Re-Finance
• Repayment Plan
• Special Forbearance
• Loan Modification
• Partial Claim (FHA only)
• Sale/Leaseback
• Pre-Foreclosure Sale
• Utah Short Sale
• Deed-in-lieu of Foreclosure
• Bankruptcy
Government Programs to Lower Your Payment
• Making Home Affordable
• Home Affordable Modification Program(HAMP)
• Principal Reduction Alternative (PRA)
• Second Lien Modification Program (2MP)
• FHA Home Affordable Modification Program (FHA-HAMP)
• USDA’s RHS Special Loan Servicing
• Veteran’s Administration Home Affordable Modification (VA-HAMP)