Foreclosure is legal action taken by a mortgage note holder against a mortgagor who defaulted on their note.
If a home owner is unable to make the monthly mortgage payment as agreed, the bank or mortgagee has the right to file a petition for foreclosure at the county court having jurisdiction. The plaintiff or mortgage note holder must present the note and relevant mortgage documents evidencing the existence of a contract to the judge. The judge will, in most cases, rule in favor of the plaintiff by issuing a summary judgment at the absence of credible evidence of payment presented by the defendant or mortgagor.
This process takes a long time in most states. For example in New Jersey it takes approximately 17 months and approximately 8 months in Oklahoma. A few states have a power of sale versus a conventional foreclosure, which takes on average 45 days. Most of us live in a state that requires due process of the law; therefore most of us have enough time to remedy the situation, find a workable solution, keep our home, or dispose of it in a less detrimental manner than foreclosure.
I understand it is stressful and embarrassing. I have spoken to many people who have experienced such a situation and they felt powerless. I know first hand, that many lack the mental strength to even consider some possible solutions. Many shut the door, wash their hands of it, and silently accept what they feel is their eminent faith - foreclosure.
In the process of foreclosure not everyone involved actually benefits, with the exception of the law firm who handles the legal aspect of it. The mortgage note holder does not want foreclosure because they are in the business of collecting mortgage payments from homeowners and are not looking forward to managing and maintaining vacant properties. The people making the threatening phone calls to you regarding your mortgage do not want a foreclosure because they risk losing the service fee they were getting while you were making the payments.
Many homeowners have told me that 'the mortgage company wants my house and this is why they don't want to work with me?. Nothing is further from the truth. The fact is the individuals they call the 'mortgage company' make at least $25,000 a year. They have a mortgage too. The last thing they want to do is tell you that foreclosure is in your future if you don't bring the loan current. Homeowners often have had a professional relationship with the 'mortgage company' for a long time. The mortgage company would simply prefer to hear you say, ?The payment is on the way. My loan will be current once it is received and I will remain current until the loan is paid in full.? If they say unpleasant words to you, trust me it is not personal it is just business. I have worked closely with such individuals and we have shed some tears together because often times the mortgagor is not willing to face reality. They would much rather treat the individuals on the other end of the phone like their enemy and will not allow them to shine any light at the end of their tunnel.
Shining a little light at the end of your foreclosure tunnel is my business. After talking and working with thousands of borrowers, I know that most people are good creditors, with the intention of meeting their financial obligations. Unfortunately, bad things happen to good people. To you good people I say, ?Foreclosure is preventable and always avoidable.?
To prevent or avoid foreclosure, consider these options:
BUY A HOUSE YOU CAN AFFORD
Home buyers are faced with the unfortunate fact that everyone involved in the home buying process is paid a percentage of the amount borrowed. Realtors and mortgage brokers are paid on commission, mortgage lenders charge an interest on the money they lend. These professionals would love for you to borrow the biggest amount you can qualify for, which is not necessarily the amount you can afford. I am not advocating for a moment that realtors and mortgage brokers will take advantage of you. Most of them are fine professionals. A majority of them are an invaluable asset to our community and provide a great service.
I am suggesting that you need to know your own limit. You need to decide how much of a mortgage payment you can afford before approaching a realtor or a broker. To help you decide, let me offer two simple options for you to choose from: foremost, look for a house you afford on one income if you are a two-income family or look for a house with a mortgage payment no more than 27% of your gross income.
Anyone who has been divorced, fired, laid off, or sick knows one less income can be a tsunami in the financial infrastructure of any family. Two pay checks every fourth week can be nice and reassuring. However, it is more reassuring to know that you only need one income to keep a roof over your head. Keeping a roof over your head and insulating yourself from foreclosure can also be achieved by having a mortgage to income ratio of 27%. This is more conservative than the underwriting guideline of a conservative lender, but the whole idea is to conserve our home. A mortgage to income ratio of 27% means that someone who has a gross income of $5,000 should have a mortgage payment of no more than $1,350. Obviously, it is a personal decision. One can adjust this amount to fit the local market and future income expectation. Adjusting down is better than adjusting up and ultimately the goal is a paid off mortgage.
ASK THE NOTE HOLDER TO REAMORTIZE YOUR LOAN
As I mentioned earlier bad things can happen to good people. Good and well intentioned people can fall behind in their mortgage payments. The note holder can and in some cases at their own discretion reamortize the outstanding note. In essence creating a new note, interest rate, and longer term which can give new life to a delinquent loan. The late charges and any foreclosure cost incurred can be added to the outstanding balance. This is a common practice with VA and FHA insured loans. This newly structured loan is done at no cost to the mortgagor. This is a way to get a second chance at continued homeownership.
ASK THE NOTE HOLDER TO CONSIDER A REPAYMENT PLAN
A repayment plan can be offered to a borrower with temporary financial set back. Car accident, complicated pregnancy, extended hospital stay and union strikes are life events that can cause a good mortgagor to fall behind on their mortgage payments. A mortgagor who missed 3 payments may not able to repay it in one lump some. The mortgage loan service may consider accepting smaller payments to be applied toward the delinquent amount. For example, let's consider a mortgage payment of $500 and the mortgagor is 3 payments in arrear for a total $1,500. The lender may consider accepting $750 a month for 6 months with $500 going toward the regular payment and another $250 can be applied to the delinquent amount until payment is current.
CONSIDER A SHORT SALE
In a declining real estate market many home owners may owe more on their home than the home is worth. In order to sell the home, they may need to bring money to the table at closing. As an example, we will consider the principal loan balance is $110, 000 but the property is worth only $105,000. In order to sell the house and give the buyer a clear title, the seller must bring the $5000 plus needed for closing costs to closing. In most cases, especially with VA and FHA, the note holder may agree to accept a lesser amount then what is owed and release the mortgage. In the case of VA and FHA insured loans, the note holder can file a claim with the respective insurer for the difference. In this case everyone wins because the seller gets a release of mortgage, the note is fully satisfied, and the buyer gets a clear title. However, conventional note holders may require a promissory note for the amount of the deficit.
OFFER A DEED-IN-LIEU OF FORECLOSURE
As I continue to reiterate, foreclosure takes a long time and costs a lot of money. When faced with financial difficulty, one should consider the options discussed. As a last resort, deed-in-lieu of foreclosure is a tool worth considering.
In this process, a mortgagor transfers all interest in a specific piece of property to the mortgagee in an effort to satisfy a note in default; subsequently, avoiding foreclosure. The actual debt must be secured by the property being transferred.
This process is beneficial to both parties, both the mortgagor and the mortgagee. Presumably, the mortgagor will be relieved from a majority of the debt associated with the note and receive moderate terms as opposed to a formal foreclosure. The mortgagee benefits by avoiding the time they would have otherwise wasted on legal proceedings along with accumulating considerable costs.
