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FAQs About Foreclosures

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What is a foreclosure?

It is a legal process where the rights to a property are taken away from its owner and the property is sold to settle the outstanding mortgages and liens against it.

How long does the Foreclosure process take?

When the loan amount becomes delinquent, foreclosure proceedings are initiated and different time frames are allotted to different loans. The time duration for foreclosure of FHA and VA loans is usually longer than that for Conventional loans. The foreclosure process starts after a specified period the loan is delinquent.

How can I stop Foreclosure?

The best way to halt foreclosure involves paying off all your mortgage payments along with the late fees, taxes, insurance premiums and foreclosure fees. If this is something that is very difficult or impossible for you, then you may instead try negotiating with your lender to modify your payments.

What options do I have to avoid Foreclosure?

There are a number of ways that can be used to prevent foreclosure. You can sell your property, opt for refinancing or a modified loan, negotiate a Forbearance Agreement, or file bankruptcy. Get in touch with your lender to let him know about your search for an alternative.

Can the lender come after me for the loss after Foreclosure?

It depends. The losses incurred on a mortgage can be recovered if the lender opts for a judicial foreclosure. This type of foreclosure enables a lender to file for a deficiency judgment. However, the lender is usually left with the proceeds that are generated from a Trustee's Sale or Sheriff's Sale. This happens only in the case of the first mortgage. If there is a second mortgage and the property has been refinanced, the lender is permitted to pursue you after foreclosure.

The major advantage of going for a Short Sale it that it enables one to negotiate with the lender to not claim the deficiency.

Should I deed by property to a third party to avoid Foreclosure?

The obligation you have towards a loan will not be eliminated even if you deed your property to another person. Moreover, this would lead you to lose control over that property and if a situation arises where the lender chooses to foreclose, the loss incurred will be put to your credit record. Hence, do discuss with a qualified professional before signing the deed.

How can Foreclosure affect my credit?

For your credit status, a foreclosure proceeding that has been completed is the most damaging to your credit. It is in fact worse on your credit score than bankruptcy. The impact of a complete foreclosure is so negative that it is able to hinder your ability to borrow money for many years.

What is a Notice of Default?

It is a legal action that gives Public Notice that all liens on your property are delinquent and that the lender has the intention of foreclosing in a Trustee's sale if the payments owed are not brought current. The Notice of Default therefore marks the starting of the foreclosure process.

Should I sign a Forbearance Agreement to avoid Foreclosure?

This agreement can be signed by the borrower to prevent foreclosure. It typically signifies to postpone, reduce, or suspend a loan's outstanding balance for a limited amount of time. It is the debtor's responsibility to clear off any interest that accrues during the forbearance. After the expiry of the forbearance, the accrued interest is summed with the principal balance of the loan. It is often agreed by the lender to avoid foreclosure on the property or speed up the payments due during the forbearance period. It can be considered as a tool that enables the borrower to keep his property. The borrower is expected to prove that the delinquency was due to circumstances that were beyond his control. These circumstances may include illness, injuries and job loss etc. It should also be shown that the financial distress has now been somewhat relieved.

What are some Foreclosure Scams to look for?

Those undergoing foreclosure are vulnerable and should think twice before signing on any document. The options that come into view during this time usually appear to be too good to be true, and usually are.

We will save your credit.  Pay us a fee and sign the house over to us.  The foreclosure will be recorded against us and not you. – False.  The foreclosure will be accounted against the borrower on the note.

Sign the property deed to us and we’ll take care of everything. – Also referred to as “bailout” scam, where the lender informs the homeowner that he is allowed to remain in his property and pay rent to him until a proper solution is chalked out. However, trouble arises once this deed is signed as it causes the borrower to lose control over the property but still be liable for the mortgage payments.

We will buy your property, lease it to you, and you have the option to buy it back. – In order to reclaim your property, you would probably require a larger loan with a higher interest rate. It will be next to impossible to qualify for such higher payments. Hence, opt for an open market sale or a small hard money loan if you possess the equity to do so.

We will get you a new loan and solve all these problems. – Each time you refinance the outstanding balance on your loan rises and uses up your equity unless you are paying the fees from your pocket. This enables lenders to make a lot of money. Be smart enough to consider not just the monthly payments but the full loan amount.

Stop foreclosure with bankruptcy. – Bankruptcy simply puts a hold on foreclosure to give you some time to reorganize your finances. It does not stop foreclosure.

I will work with your lender to find a solution for a consulting fee. – It is illegal in California for anyone, other than a lawyer, to collect an upfront fee for negotiating terms with a lender on a borrower’s behalf.

Will a Short Sale stop Foreclosure?

In order to postpone foreclosure, lenders and homeowners work together if a valid short sale proposal is received. Although a short sale does not stop the foreclosure, it provides the borrower and lender with the time to find a solution before the end of the foreclosure period.

Can I still sell my property if Foreclosure proceeding have started?

Definitely. Lenders prefer to allow you to sell the property instead of putting it through the costly and time consuming process of foreclosure. This is the reason why a discounted payoff is accepted by lenders through a short sale to satisfy the loan completely. The closing costs, escrow fees, title fees and real estate commission are all usually borne by the lender in a short sale.

If my lender calls, should I speak to them?

Of course. You should in fact be truthful about your situation to your mortgage company as it is in their best interest to work with you for avoiding foreclosure and to limit their losses on a delinquent loan. Your lender might also give you some alternatives that would facilitate in minimizing your damages. Do document all the conversations that take place between you two, including the dates, times, and names of representatives you spoke with.

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