Cheat Sheet

Foreclosure Self-Defense For Dummies

From Foreclosure Self-Defense For Dummies by Ralph R. Roberts, Lois Maljak, Paul Doroh [with Joe Kraynak]

Dealing with foreclosure can be unnerving, but if you understand the process and options available, you can face it calmly. You can call on a variety of resources if you receive a foreclosure notice, and you can ward off foreclosure altogether by understanding the varied strategies and people who can help you.

Grasping the Foreclosure Process

Knowing the foreclosure process helps you anticipate key events, gives you a better understanding of the options, and improves your chances of navigating through foreclosure. Depending on your situation and the rules and regulations in your area, the foreclosure process can take from several weeks to possibly a year and generally proceeds along the following course:

  • Pre-foreclosure: You receive missed or late payment notices in the mail and perhaps phone calls if you fail to respond to the written notices.

  • Foreclosure notice: The lender delivers an official foreclosure notice, publishes a notice in the local newspaper or county news publication, and posts the notice on or near your home.

  • Reinstatement period: For some time prior to the sale, which varies depending on your jurisdiction, you may be able to stop the foreclosure by catching up on missed payments and any penalties and fees that accrued due to the missed payments.

  • Auction or sale: Assuming you do not reinstate the mortgage or take other actions to stop the foreclosure, your property goes for sale. An investor purchases the property or, if nobody bids, your lender ends up with the property.

  • Redemption period: In many jurisdictions, you have one last chance to save your property by redeeming it — buying it back from your lender or the investor who purchased it at the auction. To redeem the property, you must pay the buyer whatever the person paid at auction plus interest and any other qualifying expenses the person paid and filed an affidavit for paying.

  • Eviction: After the redemption period (if applicable in your jurisdiction), you must move out. If you don’t move out, the court sends someone over to remove you and your belongings from the property.

Taking Action after Receiving a Foreclosure Notice

If you receive a foreclosure notice (notice of default), it puts you one step closer to losing your home so don’t ignore it and don’t despair, this is your wake up call, take these actions:

  1. If you have a significant other who’s out of the loop, inform him or her.

    Your partner is going to find out eventually, and you need all the help you can get.

  2. Contact your lender to describe your situation and discuss options.

  3. Contact a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD) by calling 800-569-4287 (TTY 800-877-8339) or by going to www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm

  4. If you financed the purchase of your home with a guaranteed loan from the Veterans Administration (VA), contact the VA for assistance; call 800-827-1000 and ask for the number to reach a loan service representative who can assist you.

  5. Start exploring your options and deciding which of those options you want to pursue.

Foreclosure Self-Defense Strategies

It’s easy to slip into panic mode when you’re faced with foreclosure, but stay calm and know that a variety of options exist. The key is to act early in the foreclosure process so you have more options available and can choose which one works best for you and your family:

  • Reinstate your mortgage by borrowing money to catch up on missed payments.

  • Negotiate a forbearance or payment plan with your lender.

  • Negotiate a mortgage modification with your lender to make the monthly payments more affordable.

  • Borrow from friends or relatives to catch up on missed payments.

  • Refinance your mortgage to pay it off completely with a new loan.

  • Sell your home (with the assistance of a qualified real estate agent) to cash out the equity and buy a more affordable abode.

  • Sell your home to an investor and buy it back on contract or via a lease-option agreement.

  • Sell your home to an investor and rent it back for several months or years. This is a great option if you want to remain in your home until your kids are out of school.

  • File for bankruptcy to liquidate assets, pay off as much debt as possible, and free yourself from unpayable debts or to restructure your debt to pay it off over a three to five-year period.

  • Offer the lender a deed in lieu of foreclosure to shed yourself of the property without having the foreclosure show up on your credit report.

  • Live in the house for free and move out just before eviction day, so you can save up a bunch of money in anticipation of moving. This approach can be a great option if you have little equity in your home and don’t really care about saving it.

Foreclosure Do’s and Don’ts

Foreclosure can be a mind-boggling experience. The stress can drive you to make mistakes — either by doing the wrong thing or not acting at all. Keep the following things in mind to deal with foreclosure rationally:

  • Do tell your spouse or partner.

  • Do contact your lender immediately.

  • Don’t move out prematurely. As soon as you vacate the premises, you lose control of the situation.

  • Do take copious notes and document everything for future reference.

  • Don’t believe everything you hear. Verify everything with a reliable source.

  • Do tell the truth. Any solution founded on a lie is sure to unravel later.

  • Don’t borrow trouble. A loan that addresses your current crisis could put you in even worse shape down the road, so do the math.

  • Don’t sign a quit-claim deed. Fraudsters may try to con you into signing over your home to them so they can “fix your problem.” When you sign a quit-claim deed or any other kind of deed, you essentially give your home to the fraudster and may still have the obligation of repaying your mortgage debt. Remember: Check with your attorney before you sign any kind of deed.

Finding Foreclosure Help

When you’re facing foreclosure, your inclination to withdraw from the problem is often the worst move you can make. Asking the right people for assistance almost always produces better results. Try contacting these people who may be able to offer valuable foreclosure help:

  • Your spouse or partner

  • Your lender

  • Your lender’s attorney

  • Your county’s register of deeds

  • A foreclosure attorney

  • A reputable bankruptcy attorney

  • Friends and relatives who can offer guidance or assistance

  • An honest, reliable mortgage broker or loan officer

  • A highly qualified real estate agent who has experience with foreclosure

  • A real estate investor who has a platinum reputation

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