Foreclosure Can Mean Different Things - Depending Where You Live

Mention the word foreclosure and most people can conjure up the mental image of someone forced out of their home for not paying the mortgage.  Of course this is the broadest and truest sense of what Foreclosure really means and in the last few years it has become distressingly common to hear about in our daily lives.

As a Real Estate Agent I deal with it on a daily basis. The primary way it comes up in my life is a homeowner expressing fear about the inevitability of being foreclosed on.  The mental image most of my clients seem to have is the ultimate end point of foreclosure where the sheriff shows up, guns drawn forcing you to the street.

That point is very far down the road.  The banks are slow to act (more on that below) and the process is much more predictable than most people realize. First you have to understand the process in your particular state.  Part of the US has a process that is called judicial foreclosure where the lenders actually have to go to the court system to take the house back.  The New York Times recently wrote that in New York State the lenders would need 62 years to process all the 213,000 homes currently in some stage of default.

A little more than half the US states do not use the judicial foreclosure process and things can move a little quicker than that.  However, there is still a process, a set time frame in which the foreclosure takes place – do not allow fear to take over. The same article in the New York Times says that all the defaults in California could be processed in three years.  This is still a considerable mess and a huge expenditure of time effort and energy on the lending industry to attempt to get back on course.

So what is the point?  Well even if you only read the headlines you have probably noticed that they are saying that the rate of foreclosures is slowing. There are many factors here. Banks are slowing down the actual foreclosures and going for more loan modifications and short sales. Then you have a higher percentage of homeowners who are trying to fight to stay in their homes.  The people who had 100% financing and “no skin in the game” as it were have pretty much moved through the system.  Those loans were the first to turn sour and get foreclosed on.  More of the people in default now have, or had, an equity stake in their property. Finally there is intense regulatory pressure on the banks by the government. Talk to anyone in the mortgage industry and it quickly becomes clear that the ever changing but increasing pressure from the Government is helping in someways and hurting in others but the end result is a slowdown in the process.

If you or someone you know is in default on your mortgage. Talk with a trusted professional about the process in your state. Start your conversation by first understanding the process then apply it to your situation.  A Realtor, CPA or legal counsel are a good places to start. Scam artists and people who want up front payments to help you save your home should be avoided at all costs. They will only make your situation worse and do no good. Your home is too important an asset to operate in the dark – you must understand the process and come up with a plan of action that is fact based not fear based.

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Should You Fight The Bank To Keep Your House?

PART I:

If you are at risk of losing your home in a foreclosure you may think there is nothing you can do and that it is too late. Not so.  The tables have turned and the  programs to help you and the regulatory pressures on the banks to make sure they have exhausted every effort to help you keep your home are pretty strong. This first part of a two part entry will help give you some basic guidelines of how you might be able to save your home.

As the foreclosure crisis continues to unfold across America we are learning that everyone is not foreclosed on for the same reason.  Homeowners who can simply not make their payment are the easiest story to understand.  Be it a medical situation, a job loss or other debts that just grew too large.  This is the classic story of people losing their homes. They can’t pay and there is no hope or circumstance on the immediate horizon that will change that picture.

However, in the realities of today’s market there are situations that are not so cut and dried.

How about the person who is still working and capable of making a payment – but got bad advice about withholding payments to get a loan modification?  How about the person who had just a temporary job loss and is now back to work earning comparable pay? How about the lady who was pushed into a loan she could not afford or understand due to a language barrier and an unscrupulous loan officer?

Two important things to know before you read any further:

• Understand you have to set aside any anger, shame or irrational thoughts about the reduced value of your home or the situation that got you to this point.  None of that will get you anywhere and in fact might cause you to make bad decisions.


• Every state has a "foreclosure time line" in other words how many days will it be from your missed payment to foreclosure action being started. Be sure you know what this is. Know where you are in the process at all times.

1) KNOW YOUR BUDGET! Your first step, and the key to this whole process,  is to figure out your budget and expenses.  What can you truly spend per month on your home? Don’t forget taxes and insurance as you figure this out. Typically it should total no more than 28-30% of your total take home pay.  Know this number by HEART – no guessing allowed. Because to win this fight with a bank you are going to have to have real numbers that can be substantiated – and you are going to have to know them well.


2) YOUR FIRST CALL: to the bank will be to request a mortgage modification.  This is not easy – the bank wants endless paperwork – but you do not need to pay anyone to do this for you. It is not rocket science it is not very much fun - but even if you pay someone else to help you you still have to do this!  Usually the list consists of the last two Tax returns, pay stubs, bank statements, mortgage coupons (yes they want copies of their own mortgage coupons!) sometimes home owners associations statements and property tax bills. Then they want an itemized household budget.  Be careful with this one. You want to tell the truth and you don’t want to forget anything.  The cats’ medicine or the once a year tree-trimming bill  just make sure it is all in there. Then there needs to be a well written – 3 paragraphs or so letter – explaining why you are behind on the mortgage and why you think that you can now make a modified payment.

PART II:  What to do when the bank says no, what to expect and what to watch out for - coming up in part two