Foreclosure

Avoid foreclosure prevention companies.
Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's failure to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien."

Foreclosure involves a lawsuit in which a bank, mortgage company, or other creditor seeks to take an owner's property to satisfy a debt. The bank or lender may actually take the property, or have the property sold to pay off the debt. As a result of the foreclosure, the owner loses whatever rights he or she had in the property.

Defending against foreclosure is complex and can be expensive. You must consider your options carefully, keeping in mind that you may end up responsible for additional legal and appraisal fees.

In order to defend in a foreclosure, you will need to pay close attention to court proceedings and deadlines.

Tips for Avoiding Foreclosure

Are you having trouble keeping up with your mortgage payments? Have you received a notice from your lender asking you to contact them? If you are unable to make your mortgage payment:

  • Don't ignore the problem.
    The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.


  • Understand foreclosure prevention options.
    Valuable information about foreclosure prevention (also called loss mitigation) options can be found on the internet


  • Contact your lender as soon as you realize that you have a problem.
    Lenders do not want your house. They have options to help borrowers through difficult financial times.


  • Avoid foreclosure prevention companies.
    You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.


  • Open and respond to all mail from your lender.
    The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.


  • Know your mortgage rights.
    Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.


  • Contact a HUD-approved housing counselor.
    The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you.


  • Prioritize your spending.
    After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.


  • Use your assets.
    Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.


  • Don't lose your house to foreclosure recovery scams!
    If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.

Types of Foreclosure

The mortgage holder can usually initiate foreclosure anytime after a default on the mortgage. Within the United States, several types of foreclosure exist. Two are widely used, with the rest being possibilities only in a few states.

The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Because it is a legal action, all the proper parties must be notified of the foreclosure, and there will be both pleadings and some sort of judicial decision, usually after a short trial.

The second type of foreclosure, foreclosure by power of sale, involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. The majority of states allow this method of foreclosure. Again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it is only available in a few states, such as Connecticut, New Hampshire and Vermont.

Foreclosure Scams

People in foreclosure are vulnerable. Think twice before embarking on a plan and think very long and hard before signing anything. There is one person in this world who has your best interest at heart. It's you. You have to be careful, think about the services promised, and determine whether the promises are real or just another way of separating you from your money.

  • We'll save your credit.
    Pay us a fee and sign the house over to us. The foreclosure will be recorded against us, not you. The foreclosure will be reported against the borrowers on the note, not anyone else.

  • We'll give you some money, just sign the house over, we'll cure the default.
    There really isn't a problem with it, IF you know how much equity you are selling and IF the purchaser really will cure the default and IF the purchaser will really make the payments and IF you want to still be responsible for the loan. Too many IFs to be able to say this is either a good or bad option, just be careful with it.

  • We'll buy the property, lease it to you, you have the option to buy it back.
    It might have happened, but the reality is, to buy it back you'll need a new loan that's larger than the loan you have with an interest rate greater than what you have. The payments will be higher and it's going to be very difficult to qualify. Explore a small hard money loan if you have the equity or consider an open market sale, you'll probably end up with more money in your pocket.

  • We'll get you a new loan and solve all these difficulties.
    Every time you refinance, unless you are paying fees out of pocket, your loan balance is going up which is using up your equity. Lenders can make a lot of money churning loans, you need to consider total loan amounts also, not just the monthly payments. Try to solve the problem, not just extend the time frame.

  • I'm an agent specializing in pre-foreclosures and I'll get your property sold quickly for top dollar.
    Some agents have a relationship with an investor and work from published Default notices. You'll get an offer, but is the the best? We've seen listed properties in foreclosure recieve higher offers with no contingencies and the capability for quick closing that aren't always accepted by sellers. Why? Most likely, because they are never presented to the seller. Use local agents, get three Comparative Market Analysis and be cautious.

  • Stop Foreclosure with Bankruptcy
    Bankruptcy does NOT STOP foreclosure. It puts a hold on foreclosure which can allow you time to reorganize your finances. Every area has reputable attorneys who handle bankruptcies. Spend the time to find one and spend the time to know what you have to do and when. Mistakes can cause things to get very bad very fast. Do you want it done right, or do you want it cheap?

    The most common scam happens either during or after the foreclosure. Person breaks in to a vacant house, changes the locks and then rents the property out. When a property is advertised at below market rent, the phone number is voice mail and the "landlord" wants to meet at a restaurant or other public place, it's quite likely a scam.

    Another variation on this same theme is a person giving an owner in foreclosure a cash amount for the equity in the home. The small cash payment gains control of the property which is then rented out with no payments made to the lender. The "landlord" pockets any rents received while delaying the foreclosure as long as possible.

    Bankruptcy Fraud Scams
    "Bankruptcy foreclosure scams" target people whose home mortgages are in trouble. Scam operators advertise over the Internet and in local publications...

Foreclosure Process

The process of foreclosure is lengthy and the timeframes for when the lending institution begins the process vary from state to state. Other factors, such as the increasing availability of personal loans for owners facing foreclosure, present homeowners with foreclosure avoidance options. Websites which connect individual borrowers and homeowners to individual lenders are increasingly used as mechanisms to bypass banks while meeting payment obligations for mortgage providers. The increase in the number of foreclosures in the United States has led to more loan listings which are designed to forestall or prevent foreclosure.

In the United States, there are two types of foreclosure in most common law states. Using a "deed in lieu of foreclosure," or "strict foreclosure", the bank claims the title and possession of the property back in full satisfaction of a debt, usually on contract. In the proceeding simply known as foreclosure (or, perhaps, distinguished as "judicial foreclosure"), the property is exposed to auction by the county sheriff or some other officer of the court. Many states require this latter sort of proceeding in some or all cases of foreclosure, in order to protect any equity the debtor may have in the property, in case the value of the debt being foreclosed on is substantially less than the market value of the immovable property (this also discourages strategic foreclosure). In this foreclosure, the sheriff then issues a deed to the winning bidder at auction. Banks and other institutional lenders typically bid in the amount of the owed debt at the sale, and if no other buyers step forward the lender receives title to the immovable property in return.

Other states have adopted non-judicial foreclosure procedures, in which the mortgagee, or more commonly the mortgagee's attorney or designated agent, gives the debtor a notice of default and the mortgagee's intent to sell the immovable property in a form prescribed by state statute. This type of foreclosure is commonly referred to as "statutory" or "non-judicial" foreclosure, as opposed to "judicial". With this "power-of-sale" type of foreclosure, if the debtor fails to cure the default, or use other lawful means (such as filing for bankruptcy which provides a temporary automatic stay to the foreclosure proceeding) to stop the sale, the mortgagee or its representative will conduct a public auction in a similar manner as the sheriff's auction described above. The highest bidder at the auction becomes the owner of the immovable property free and clear of any interest of the former owner but the property may be encumbered by any liens superior to the mortgage being foreclosed (e.g. a senior mortgage, unpaid property taxes etc). Further legal action, such as an eviction may be necessary to obtain possession of the premises.

"Strict foreclosure" is an equitable right available in some states. The strict foreclosure period arises after the foreclosure sale has taken place and is available to the foreclosure sale purchaser. The foreclosure sale purchaser must petition a court for a decree that will cut off any junior lienholder's rights to redeem the senior debt. If the junior lienholder fails to do so within the judicially established time frame, his lien is cancelled and the purchaser's title is cleared. This effect is the same as the strict foreclosure that occurred at common law in England's courts of equity as a response to the development of the equity of redemption.

In most jurisdictions, it is customary for the foreclosing lender to obtain a title search of the immovable property and to notify all other persons who may have liens on the property, whether by judgment, by contract, or by statute or other law, so that they may appear and assert their interest in the foreclosure litigation. In all US jurisdictions a lender who conducts a foreclosure sale of immovable property which is the subject of a federal tax lien must give 25 days' notice of the sale to the Internal Revenue Service: failure to give notice to the IRS will result in the lien remaining attached to the immovable property after the sale. Therefore, it is imperative that the lender obtain a search of the local Federal Tax Liens so that if the persons or companies involved in the foreclosure have a federal tax lien filed against them, the proper notice to the IRS will be given. A detailed explanation by the IRS of the Federal Tax Lien process can be found here.

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