If you find yourself falling behind on your mortgage payment it is essential that you come to an early decision on how exactly you want the outcome of your foreclosure to be. Most people like to bury their head in the sand and hope that someone will arrive or something will occur that will answer the problem for them. Trust me you have a better chance of winning the lottery. And the reality is that even though you are experiencing difficulties with this aspect of your life you still have options and there are still choices for you to make. All procrastinating achieves is giving someone the right to make your choices for you.
No one is coming to save you. Repeat no one is coming to save you. So now that we have sorted that out let us lay out your options.
- You really want to stay in the home.
- You want to get out of your current
scenario as soon as possible and start
- You would like to stay in the home for
as long as possible and save some start
up capital by living rent/mortgage free.
A cautionary word of warning before we continue.
Do not repeat do not sign an option to purchase your home with an extended time frame and no option money. A standard land contract or option to purchase should have a time frame and a monetary amount paid at signing which is forfeited if the sale does not take place. Unfortunately in these troubled times homeowners in trouble are being preyed on by unscrupulous individuals who call themselves investors. The reality is that if you are in negative equity and sign an option to sell your home that option will immediately be recorded at the registry of deeds and you will lose ownership rights to your home including the right to hire a realtor to sell your property via short sale until the time period of the option expires. During this time the investor will attempt to negotiate a price reduction on the outstanding mortgage balance that will nett them a tidy profit. If they fail to negotiate a suitable profit for themselves they will let you home go to foreclosure and you will get nothing. This kind of arrangement is solely for the benefit of the investor who sees the troubled home owner as a resource for him/her to harvest. You have been warned.
So let us look at each of the above strategies and the best way to maneuver the rapids.
You really want to stay in your home.
If your ultimate goal is to continue living in your home long term then it is essential that you immediately begin dialogue with your mortgage holder. Unless you have a large equity position built into your property then you can assume with confidence that the last thing the bank wants to do is foreclose.
They will work with you but they must have something to work with. If you have lost your income then realize that your home/ mortgage payment isn’t your problem. Your problem is income.
So as you start on the journey to keep your home you must also start on a parallel journey to create an income substantial enough to pay for it.
Things are seldom as they seem and in my experience foreclosure is a symptom of another ill. So at this early stage, while you still have the comfort of time on your side, look at yourself and ask why you find yourself in this position.
It really is a great mistake to think that the foreclosure is the problem and to focus entirely on it. What can you achieve by focusing on a symptom and leaving the cause to go untreated?
I repeat the foreclosure is not the problem, not paying the mortgage for whatever reason is the problem. After all the soul searching, after the fat lady has sung, what transpires is that “for whatever reason” is the cusp of the problem. Your task is to find out what your specific whatever reason is.
In the end even though you initially really want to stay put, by examining the reasons for your foreclosure your might just come to the conclusion that for you the best thing is to reevaluate your life and move on using strategies 2 or 3.
However is you can come up with the income necessary to satisfy the concessions your lender is willing to make you might just be on the way to recovering your old life.
You want to get out of your current scenario as soon as possible and start anew.
There are two ways of looking at impending foreclosure from this viewpoint. Some people who don’t really care about their credit will just up and walk away, abandon the property and let what happens happen. Unburdened from the home and the stress of dealing with a hopeless situation, like abandoning a sinking ship they are in their head at least free to start anew.
However if you are someone who would like to control the carnage then your option is once again to begin early discussions with your lender to evaluate the options available to you.
If your economic situation is deemed to be such that all agree that you cannot afford the home then you will have two possible options.
- Deed in lieu of foreclosure commonly referred to as deed in lieu. If you have more than lien against your home this option might not be available to as the other lien holders would have to forgive their debt to enable you to transfer ownership via deed to the first mortgage holder free and clear. The first mortgage holder will not be willing to assume the other liens. So deed in lieu is really for homeowners who only have one mortgage recorded against their property.
- The other option is Short Sale. Short sale is a negotiated process where the lien holders agree to accept less than the amount owed to facilitate a sale. Basically if your home is worth $200,000.00 in the current market and your mortgages are for $250,000.00 then the banks would agree to accept the lesser amount to allow you to sell the home and save all concerned from the expense of foreclosure. Remember that if the bank is forced to foreclose on your home in a bad real estate market they too will have to sell it for current market value plus they will be stuck with the legal costs of the foreclosure plus the cost of eviction and managing a vacant property through to the final sale. In cold zones this is a major headache with freezing pipes wiping huge sums off the value of homes. So believe me you are in a position of some strength because the last thing the bank wants to do is become a landlord.
But remember time is of the essence. Don’t repeat don’t dally. Make a decision regarding your future and act with haste. Call the Bank! Call the Bank! Call the Bank!!!
So you have talked to the bank and come to the decision that short sale is your best option, what to do. First find a real estate agent to list your home for sale. Do your due diligence here and find someone who knows the process. Every realtor will tell you that they are experts. Feel free to look at hiring a realtor as an interview for a job. Ask them for references. If it is there first venture into the short sale process then make sure that you are comfortable with their capability before you hire them. From a realtors perspective short sales are very time consuming because they will have to spend innumerable hours on hold with overworked loss mitigation agent at your bank. And remember if you have a second mortgage for 15% to 20% they will most likely be asking that bank to accept a $5,000.00 maximum payoff for your liability which could be over $100,000.00.
Also remember that a realtor is a real estate agent who has paid a fee to the local board of realtors. There is no exam required to be a realtor merely a payment of somewhere in the region of $500 per year. So don’t think that because you hired a realtor over a real estate agent that you have superior help.
So your have listed with a broker and your home is listed on the local MLS (multiple listing service). Initially this listing should be for an amount that will clear all outstanding liens against your home. Every week or two your agent should reduce your list price until you start attracting interest and showings. Eventually you will receive an offer. Keep in mind that when the list price falls below the amount required to satisfy all debts recorded against your home that your agent will be required to add a remark like “Subject to third party approval” to your MLS listing and inform all interest parties that any sale is subject to the approval of your lenders.
The day has finally that you have an offer and an earnest money check. Now it is time to submit your short sale offer to the bank. If you haven’t already gathered the accompanying paperwork required for the short sale package, you will have to do this now. Most banks have a short sale punch list that they will provide you with. This is the bones of what you will need.
- Fully accepted offer and copy of earnest money check.
- Hardship letter from borrower fully laying out your present financial circumstance and why you can no longer afford to stay in the home.
- Tax returns, W2, Pay stubs to substantiate your inability to pay your mortgage.
- A proposed HUD settlement statement showing how the funds will be distributed at closing. As previously mentioned most first mortgage holders will allow no more that $5,000.00 to be paid to junior mortgage holders. Also it is imperative that the debtor (you) is not seen to profit in any way from the sale. It should also show real estate commission and legal costs. If only one real estate agent is party to the closing the commission might be capped a 4% however is there is a listing and selling broker 6-7% is attainable.
- A limited power of attorney signed by the borrower with the last four digits of their social stating relevant information and naming the person authorized to negotiate with the lender on their behalf.
- Income and expense statement. Most banks have a standard income and expense statement that they will forward to you as part of their short sale package.
Remember in the current real estate collapse the banks are bogged down, so on every item sent to them by fax or mail you should print the account number in large format in a conspicuous place. Feel free to place it in the margin handwritten in sharpie on your nicely typed documents. Better to mark the beauty than to have it go unread to the waste paper basket.
Now that the process has started give the bank the initial timeframe they ask for to access your short sale proposal and then be the proverbial squeaky wheel that gets greased. If you wait for the bank to get back to you then you will wait for the bank to get back to you. They will not imitate contact,,, period. If the person you have appointed to negotiate on your behalf with the bank is a slacker and not proactive then your home will be foreclosed. that is auctioned off. The bank will not wait forever and it incumbent on you to ensure that the negotiations are progressing at an acceptable rate
You would like to stay in the home for as long as possible and save some start up capital by living rent/mortgage free.
So now we come to the naughty folk, the risk takers, and in most cases the winners. Please note that I am not lauding this approach but it appears that if a person first addresses their income then when the time comes to move on they will at least be funded. And perhaps they will need the funds because their credit will be shot to pieces.
- Initiate communications with the bank as if you are sincere in your attempts to work out your problems.
- Follow all options afforded to you by your lenders. Keep in mind that your ploy is to prolong your payment free stay.
- When all avenues have been exhausted and the bank finally decided to foreclose then the day before the auction you should file Chapter 13 Bankruptcy at your local US Bankruptcy Court. It is imperative that you file far enough in advance to allow the foreclosing lender to be notified of the fact that you have filed bankruptcy. Also it is better if you file Pro Se (without the help of an attorney).By filing pro se you will receive the maximum sympathy from the court. The lender is legally obliged to cancel your auction on notification that you have filed bankruptcy.
- Follow through on your Chapter 13 until (a) the bank files for “relief from stay” Or until you feel that you are either incapable or would rather not file the required documents with the bankruptcy court.
- Then you can either wait until the court throws out your case for non compliance or even better write the court and ask them (for whatever reason) to dismiss your case.
- If the bank files for relief from stay, request a hearing which will get you some more time. Always substantiate your petitions with relevant documentation i.e. offer to purchase, appraisals etc.
- When your chapter 13 which is reorganization is finally dismissed by the court the bank will schedule your auction again.
- Shortly before the auction you should file Chapter 7 Bankruptcy with your local US Bankruptcy Court. Chapter 7 is a petition to wind up your affairs. By filing chapter 7 you are stating to the court that you can no longer hope to recover financially and that you would like them to distribute your assets and absolve your debts. In a sense by filing chapter 7 you are giving you home to the bankruptcy trustee to do with as he pleases.
- The bank will almost certainly file for Relief from Stay. Basically when you file bankruptcy all actions against you are stayed (stopped) by the court. Because it is a chapter 7 (wind up) the bank will ask for and receive Relief from Stay giving them the right to auction off your property.
- When you receive notice from the banks attorney that they have filed for Relief from Stay you should write to the bankruptcy judge assigned to your case requesting a hearing to contest the granting of the banks petition. You should state why and on what grounds you are contesting the granting of the petition for Relief from Stay. If you have an offer to purchase the court might grant you 60 to 90 days to finalize your sale.
- In some jurisdictions it may be possible to petition the court to dismiss your Pro Se chapter 7 on the grounds that you don’t know what you are doing and hire an attorney to re file thereby granting you more time. Do not Repeat do not ever let it appear that you are manipulating the court to achieve your goal.
Please note that any short sale that may be in progress is stopped by a bankruptcy filing.
After you have run bankruptcy to its course there is a little known fact that you can petition the court to gain some more time. In some states you can Petition the Superior Court for Declarative Judgment to stop an auction. If successful the court will issue a preliminary injunction ordering the bank and its agents to cease until a specific date. Unlike bankruptcy which is usually a last minute filing a petition to the Superior Court should be submitted allowing sufficient time for all parties named (the bank, the foreclosing attorney, the auctioneer) to be served. Service is by local sheriff and you should also send copied of all papers certified mail return receipt requested. The service should be served at least 7 days before the hearing date. If you are a day or so late filing your petition with the Superior Court in the county where you home is located, the Judge at his/her digressions could issue a short order of notice (less than 7 days) Don’t repeat don’t rely on this. If you plan to petition the court, do so in plenty of time. There will be a hearing and you must attend and be ready to testify and plead your case. The bank might or might not attend. It might be easier for them to allow you the extra time. If the bank does not show up your petition will most probably be granted?
At this stage you have most probably lived in your home for about two years rent/mortgage free. Now comes the eviction part. Depending on the result of the auction your home will be either bought by a third party (a member of the public) or bought back by the bank.
If it is bought by a third party then in approximately 30 days from the date of the auction they will be required to pay the outstanding balance between the bid amount and the required deposit. Now they own your house and unfortunately for them they also own you. Depending on your states housing laws and eviction procedures they will have to set about getting rid of you. Remember only a Judge can order your eviction. The new owner might come around demanding that you vacate. You don’t have to. If they become aggressive call the police and go to the court and take out a restraining order. In some states it is illegal to evict a tenant from a property that has housing code violations, call in the city code enforcement inspector and get a list of violations to bring with you to the eviction hearing. Check out the registry of deeds to make sure that the new owner’s deed has been recorded. Only the owner on record can evict you. Also the eviction warrant when granted only applies to the people named on it. If you are a resident and you are not named then you cannot be evicted.
Also in most cases it is in the new owners interest be it the bank or a member of the public to offer you key money to move. After a foreclosure the bank will almost certainly send its agent around to see if they can get you to move out without involving the courts. They will offer you a sum to move. Why not ask for a much larger sum.
With the mountain of foreclosures and the mass of people being thrown out of their homes sympathy for new owners be they banks or not is at a low ebb in the courtroom.
If you ask the judge at an eviction hearing for a compassionate period of time to move and state that you are willing to pay the new owner a rent, then in most cases the judge will side with you and see to it that the new owner accepts.
When the day finally dawns and you have run out of time then I would suggest that you hire your own moving truck and move the day before the sheriff comes. The embarrassment of being evicted just isn’t worth an extra free day.
Check back often as new procedures will be added as they are uncovered.
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