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Vested Interests Presents Helping Loved Ones On The Brink Of Foreclosure
Helping Loved Ones on the Brink of ForeclosureIf you, or someone you know has fallen behind in their mortgage payments, please forward this article to them as soon as possible. It very well may help save them from an otherwise ugly outcome.
" I am Behind on My Payments - Help!"
There are times in life when things can get out of control and falling behind on your mortgage payments is a real headache. If you have already received a Notice of Default (NOD) or Notice of Trustee Sale (NTS) to save your credit and avoid a potential tax nightmare, you need to take immediate action. The following may help you relieve the pain.
I Can't Make My Payments - When Will They Foreclose on Me'
That is a great question and it is dependent on the individual lender and your situation. Each lender has guidelines on how far in arrears (missed payments) they will let a property go and what they will do to try to avert a foreclosure. The bank does not want to foreclose and definitely does not want to get your house. For them it is a major problem and represents a loss of income and capital and they have to report it to their stockholders and the federal regulatory agency, which oversees the lenders and ensures that they are financially solvent. Too many bank-owned properties or non-performing assets (homes not making payments) and the federal government could step in and take over the bank! Guess what happens to the bank president and top management' So each bank sets up programs to minimize these losses (generally called the Loss Mitigation Department). They send out letters and attempt to collect the debt. Some move very quickly and others are slower. However, once they decide that they are going to start the foreclosure process it can take as few as 111 days to complete the foreclosure, assuming that the timing is correct (such as the time of month that the process was begun).
Understanding the Foreclosure Process
The length of time and the exact steps it takes to foreclose on a property can vary from state to state. The entire A to Z foreclosure proceeding takes about four months in California.
Notice of Default
Foreclosures are more often accomplished out of court. Before starting the foreclosure process, the lender first mails a letter to the borrower, which allows at least 90 days for the borrower to pay the default amount on the loan, including all fees (including the attorney's fees), principal and interest. Following this time period, the lender may begin the foreclosure process by mailing a second letter to the borrower which states that the loan has been accelerated (full balance now due), and a sale has been scheduled to recover the full amount due.The lender is required to start this process by notifying you and publishing your name, address and other details of your default in a newspaper of general circulation in your area. This effectively puts the world on notice that you are behind in your payments and that your house will be sold at a trustee sale if you don't make up the back payments during the allowed period.
Notice of Sale / Auction
The lender posts a notice of sale at the door of the county courthouse and files a foreclosure notice with the country clerk approximately (depending on the state) days prior to the foreclosure sale. The lender also mails a copy of the notice to the borrower at the last known address 21 days prior to the sale There are services that will record this data and sell it to investors, bankruptcy attorneys, and mortgage brokers, and others who specialize in working with properties about to be foreclosed on. Check with your county courthouse to find out when foreclosure sales are held. The sale will normally be held on the county courthouse steps. The sale is conducted as a public auction with the property going to the highest bidder, who pays in cash. Due to the requirement that they pay in cash and because they have not seen the inside of the property the bids are very low in anticipation that there will be major repair work needed.
The trustee transfers ownership to the highest bidder free and clear of any junior liens but subject to any senior liens. If the bid amount is higher than the amount owed to the lender, any surplus goes to junior lien holders. If the former homeowner is still occupying the property, foreclosure is treated as an eviction. The property is posted and the occupant is warned that they are unlawfully staying in the premises and that they will be evicted. This process can take as little as three weeks to complete. If the occupant still has not vacated the premises, the police will forcibly remove them and their possessions will be placed outside.
Overview of the California Foreclosure Process:
The foreclosure time clock starts when the mortgage lender files a Notice of Default (NOD). The NOD is filed with the county recorder. It is also mailed to the borrower as well as to other parties who may be affected by the foreclosure. This document identifies the terms of the foreclosure, such as the amount owed to the mortgage lender, and the date by which the borrower must pay all principal and interest owed, including fees.The borrower can pay off the total amount owed (including fees) up to five days before the trustee's sale.The next step in the process is at ninety days. California requires that a Notice of Trustee Sale (NTS) be posted both on the property and in a local, public place. It also must be published a local newspaper. The lender must publish the NTS once a week for a period of three weeks, and at least twenty days before the trustee sale. The borrower also receives a copy of the NTS from the lender. Since this is a public document, anyone who requests a copy can receive one.The NTS details the location of the trustee sale, the date and time of the sale, the address of the property being sold, and the trustee's contact information. It must be filed at least fourteen days before the sale.The last step of the foreclosure process is at day 111. At least 111 days after the clock started on the foreclosure process is the Trustee Sale Auction. The trustee sale is held in a public place (usually the county courthouse). A representative of the lender conducts the sale. The successful bidder receives a trustee's deed immediately at the sale (for which he or she pays in full with cash or a banker's check). Most often, however, the lender is the successful bidder, at which point the property becomes part of the lender's REO (real estate owned) portfolio.
The Hidden Pitfalls of Declaring Bankruptcy or Having a Foreclosure
It Could Cost You Your Job and a Lifetime of Embarrassment!
Credit/Job Warning! A foreclosure or bankruptcy can stay on your credit reports for ten years.
Credit applications and now many job applications ask if you have ever filed a bankruptcy or foreclosure. If you answer truthfully, you may jeopardize your chance to get new credit or a job you really want. If you lie, you risk the possibility that they may do a background check and find out and then you will be denied the credit or job. Even after you start employment, if it is discovered that you lied on your application it is grounds for termination. This may also be used as a reason to deny you a promotion - especially for management positions or positions that deal with other people's money or credit. Don't get caught in this situation.
Foreclosure Warning! You May Owe the IRS if a Foreclosure Occurs
The bank or mortgage company can send you and the IRS a forgiveness of debt statement after they foreclose on your home, which is added to your income tax form as income!
Example:
Market value of home $500,000
Owed on mortgage $460,000
Missed Payments $24,000
Unpaid Property Taxes $5,000
Total Owed $489,000Bank sells House for $450,000
Commissions $22,500
Holding costs (6 months) $24,000
Fix up, attorneys fees, misc. $25,000
Bank Nets $378,500Bank was Owed $489,000
Bank Received (Net) $378,500
Bank Lost $110,500
The Bank will notify you and the IRS that they are forgiving the $110,500 that you owe them in a 1099. This is the equivalent of income and you now owe income taxes on the $110,000! So if you are in the 28 below the fair market value! Owners are desperate to sell or the property has already been foreclosed on and the bank needs to dump the property at whatever price they can get. That's your competition. So unless your house is in top condition, it is prime selling season (summer months), and you can afford to wait as long as is necessary then this option may not work for you. And to make matters worse, many towns have too many houses on the market for the numbers of buyers. So it may take even longer than three to six months to sell your home. This means that if you're facing foreclosure in the next two to four months, your home may not sell with a real estate agent in time. And even then you may not get all of the money you need to satisfy the bank! Although there are many good real estate agents, the odds are stacked against them. Credit scores in the United States have never been lower so a huge percentage of the potential buyers are frozen out of the market. They can't qualify for a mortgage to buy a home. If a buyer can qualify, they have a tremendous number of homes to choose from, including existing homes that are discounted and new homes from developers offering crazy incentives just to get someone to buy their houses. And on top of that, many real estate agents don't have a lot of experience. It only takes a few weeks to get a real estate license and most of the topics that the prospective agents study have very little to do with how to sell your house quickly. If you have the luxury of time and can afford to wait while your home is on the market here are some questions you should ask to protect yourself. When interviewing a real estate agent and to protect your interests, ask your prospective listing agent the following questions:
1. How many houses have you listed in the last year'
2. How many of them have you sold'
3. How long did it take to sell them'
4. Did they need to drop the price to sell'
5. How would the agent market your property (how frequently are newspaper ads placed, open houses held, etc.)'
6. How many listings do they currently have'
7. How long have they been listed'
8. Are you a full-time real estate agent'
9. How long have you been a full-time agent'
But my agent says that he/she can sell my house in only 60 or 90 days
Ask them how many listings they have had for the last year. Then ask how many they sold in less than 60-90 days and how long after that, it took to close escrow. It is not uncommon for the escrow process alone to take 45-60 days or more. You may be surprised at how long it really takes, but if you have the luxury of time, and are not facing foreclosure then this may be a good option for you. To test how confident the agent is in being able to bring you a qualified buyer, and get the house sold during this timeframe, ask them to do a listing agreement that is for only 60-90 days at the price they told you it would sell for. Very few agents will take up this challenge and for good reason. Unless they are pricing the house at 15-20 of list is average sales price)
Commission $24,250 (5 average for closing, repairs, allowances, etc.)
Holding Costs $14,555 (3% average)*
Net Sale $431,640 After 4-8 months or more on the market!*
Holding Costs - This is a conservative estimate of the costs incurred while holding a property for sale such as: Taxes, lawn care, utilities, property upkeep, etc. and does not include monthly mortgage payments. If the house is vacant for six months, this could be significantly higher! What if you owed more than the $431,640 payoff amount' In that case, you need to pay the difference prior to the home being transferred. So if you owed $480,000 on your loan you would need to bring almost $50,000 dollars out of your own pocket to be able to get rid of the house!
For Sale By Owner
Many people attempt to sell their home on their own without the expertise of a real estate agent in an attempt to save the commission. There have been a number of studies that have shown that unless the house being sold is in a really hot market, where buyers are desperate for houses, the house will sit on the market for a lot longer without a real estate agent. Typically, the sales price also ends up being discounted more than the sales agent's commission would have cost. If you want to go this route you should use one of the services that list the house for you on the Multiple Listing Service (MLS) and offer a three percent commission to an agent that brings you a home buyer. You should be aware that many agents will be unhappy about dealing directly with a homeowner, because they will have to do the job the selling agent should be doing and because they see you as cheating them out of a commission.
Vacant House Insurance Warning! YOUR HOUSE MAY NOT BE INSURED
Vacant houses are frequently not covered under standard insurance policies, even if you are making your payments. If a catastrophic event happened like a fire or broken water pipes that flood the inside of the house the insurance company will investigate. If they determine that you were not occupying the property and you did not change your coverage they may deny your claim! You could be stuck with a worthless property and still owe hundreds of thousands of dollars to the bank.
Selling through a "Short-Sale" with an Investor
Julia and her husband had some financial difficulties because they had to refinance their home to help pay for some operations her mother needed. Unfortunately, the payments became too much for them, they were falling behind, and the bank was threatening foreclosure. The real estate agents weren't able to help them because they needed some work done on the house and there wasn't enough equity to pay their commissions and closing costs - and certainly not with only 60 days left before the auction. To save their credit, they sold their house through the help of an investor who helped them find a new buyer through a "short sale" application. Because of their distressed situation, required rehab work and the proper "short-sale package" submitted the mortgage company accepted a much lower pay-off on their loan which stopped the foreclosure. The process allowed them to sell their home through the investor to a new buyer at a reduced price, get some cash to help them relocate, and move on without destroying their credit.
Bottom Line - Summary
Facing the prospect of foreclosure is not pleasant for anyone. However, if the inevitable is crashing down on you fast the worst thing you can do is nothing. Get an action plan together and carefully contact and screen out people you feel you can trust that can help you. Understand the facts and your options and then move forward quickly with a plan. We wish you the very best outcome for your difficult situation. Vested Interests can help although we primarily work with homeowners facing foreclosure in Southern California. However, our website has more useful articles and resources at http://www.vestedinterests.net. Good luck to you and your family.