What is foreclosure? Foreclosure is the process which occurs when a lien holder takes back a property from a homeowner through a legal procedure. The process usually occurs when a homeowner is behind on payments, but can also be for non-performance of a specific responsiblitly, such as keeping taxes current.

The procedures for foreclosing vary from state to state. You first need to know if your state is a trust deed state or a Mortgage state. With a trust deed state the foreclosure is done by a neutral third party called a trustee. In a mortgage state it is generally foreclosed through a judge in court.

There are variations, but these are the two most common foreclosure methods. In general, a mortgage state might take longer to foreclose than a trust deed state.

The time line begins (in most cases) like this: If you should be behind at least 30 days on your house payments, the lender gives you a warning. When you do not respond they file a Notice of Default (NOD) at the court house. This notice of default is the beginning of the foreclosure process.

You are served papers, usually by certified mail, and often notified through a notice taped to your door. This notice will outline (depending on what is required by your state) how much you owe, to whom it is owed, by what date you must bring it current, and the address of your house.

This NOD will usually state that if you do not pay within 30 days (or whatever is allowable in your state) they will foreclose.

Once the 30 days (or whatever number of days given) is passed, they then file the second round of documents which usually include the sale date. Once again you will receive notice by mail and on your door. The sale dates vary widely from state to state. Some might be as long as 120 days on some just a few short days.

Once the auction date or court date has been set, you are set to lose your house. There are, however, a few options you have.

You can file a bankruptcy which will delay your house foreclosure, you can sell your house, you can give back your house, or you can just let foreclosure take place.

Let’s talk about each of these in turn.

One of the most common ways to “avoid?foreclosure is to file bankruptcy. Now, did you notice I put avoid in quotations? That is because bankruptcy does not avoid foreclosure, it only allows you time for the courts to sift through your assets before the house is given back, it does not prevent foreclosure.

Let me explain. There are a lot of people with the misconception that bankruptcy means “wiping out your debt? It does, with some exceptions. Those exceptions are, secured debts. Secured debt means anything that your lender gave you a loan on and you gave them a promise to pay with a guarantee using something you owned. Example: if you purchased a car, your bank would give you a loan with your car given as collaterial. That means your loan is a secured loan. The same for a house. Your home loan is secured by the value of your house.

In bankruptcy, if your house was not current you could lose the house. If your house WAS current, depending on the equity in your house, you most likely will get to keep it and continue making payments. A bankruptcy does not nullify the balances owed to secured debt.

Bankruptcy is a federal protection for a person against creditors. Even so, each state has their own laws which enter into the picture.

Getting back to foreclosure. Each state has rules about redemption periods. A redemption period is your right to re-purchase the house after foreclosure. This would include the principal, interest, and legal fees. It does not mean that you just catch up on back payments.

At this point, if you can swing a loan (or win the lottery) for the full amount before your redemption period is up, you could get the house back.

There are some states that have NO redemption period.

Now about selling your house. Once you have received your Notice of Default you have damaged your credit, a foreclosure is on your credit report. But then again, you have also damaged your credit once your house payment is over 30 days late.

The best thing you can do is stop the bleeding and sell your house. By doing so early in the late payment process, you will save your credit from the dreaded foreclosure notice on your credit report.

Ideally, if you have decided to sell, you should do so BEFORE you receive a notice of default. If you want a quick way of selling, contact one of our associates. Do so by going to your state, and then clicking on the county.

There are no gimmicks to an investor buying your house. Even when there is no equity they can increase it’s value by selling to one of their clients who is looking for a house and needs time to clean up their credit or earn money for a down payment.

Giving back the house. Yes, you can give the lender back your house. BUT, keep this in mind ?if you keep the house and have someone make the payments for YOU, YOUR credit will improve. As long as you have record of 12 months of constant timely payments, you are on your way to improving your credit. This can be a real boost if you want to step out again and purchase another house.

Waiting for the foreclosure to finish. Hmmm....definately not your best decision. If you wait around and let foreclosure take its route, you will damage your credit and require a few years before it can be up to the point where you can purchase again. The only thing you will get by letting it go through is time. Usually, after the house has been foreclosed, you will receive a notice giving you x amount of days to vacate.

Some final thought on foreclosure. Don’t think that if you pay the first loan on your house, that a second lender can’t foreclose. If you are current on the first note holder, but delinquent on the second, the second can foreclose.

Your chances are, however, a little less likely that the second will foreclose since they will have to cash out the first. But still, if the value is there, the second note holder too has an option to foreclose for non-payment.

Foreclosure represents a high-stakes risk for every homeowner and investor. No one expects to purchase a house and not make payments. However, if such an event ever occurs for whatever reason, the property owner needs to understand these ramifications, and consult with a real estate attorney.

Brandy Eismon

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