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Foreclosure 101

Foreclosure. It is the 800 pound gorilla in the room of many families. Nobody wants to lose their home first and foremost. The current crisis of waves upon waves of communities riddled with distressed, empty or abandoned homes is hurting cities and ultimately wrecking the economy further. Foreclosure is meant to be a last resort for lenders to get value out of an untenable situation and it is hard for the homeowner in trouble not to take it personally when they are pursued so hard. Take heart friends because knowledge is power! By understanding the steps in process, you will know what your rights are and what you need to do. Although this time in your life can seems scary, if you arm yourself for the trials ahead you will certainly handle things better, no matter how tough it gets.

The Basic Steps In A Foreclosure:

Default:

Technically when you miss a payment you are in Default. Contrary to popular belief most lenders are not impersonal corporate giants who only view you as a number and a dollar sign. Of course they want you to pay your mortgage and don't want to throw you out of your home. If you run in to financial difficulty contact them ahead of time (if you can) and let them know. If you are suddenly in a tight spot there are steps to take to keep you on track. If you wait until you miss a few payments and are well lapsed, you create a different dynamic with your lender than if you are proactive. If you begin to get letters of default and Delinquency (basically the same thing) do not ignore them. One thing to keep in mind is many people dig themselves in a bigger hole by not coming to grips with the idea of selling their home and downsizing their lifestyle immediately. If you are unable to meet your obligations and you know that will not change for the better, you should consider taking steps to sell rather than wait and see.

Acceleration:

After you have been sent several default notices your lender may begin the Foreclose process by sending you a "notice of acceleration". Most states require this notice to be sent to homeowners to give them the chance you fulfill their obligation to their loan balance in full before a full on foreclosure begins. This constitutes an official notice from the lender that they are planning to terminate your mortgage if you do not pay your balance in full in thirty days. You may or may not also receive a court summons in conjunction with this notice depending on your situation or the state you live. This is a good time to pull out any last ditch strategies to keep your home, including further negotiating with your lender. If you are trying to sell your home to avoid losing it altogether with nothing to show, now is the time to price it to move.

Notice of Sale:

Once a time and date of sale is determined by your lender they are obligated to send you a "notice of sale". The sale date is the date you no longer have a claim of ownership on your property. If you are selling the property to need to complete the closing with the new buyer, before this date of a foreclosure sale. There are rare occasions you can convince a lender to postpone a date of sale to your benefit, but it is unlikely. If you are filing for Bankruptcy you must file before the sale date. Once the sale date arrives the lender will not negotiate any further with you to try to keep you in your home. Your last line of defense at this point is to offer the lender the "deed in lieu of foreclosure". Even thought this is still technically a foreclosure, it is less damaging to your credit score since you are voluntarily giving up your claim to the property.

Public Auction:

Even if your home sells at Public Auction your obligation may still not be fulfilled to your lender and your loan. Homes sold at auction usually sell for a fraction of their worth and true value. If the final sale price is less than the amount you still owe you may receive notices for payment of the difference is still owed. Not too mention auction fees and attorney fees are often tacked on to the previous owner has lost their home and still gets no relief.

This is just a high level overview and legalities and practices change from state to state and case to case. There is some very good information and resources available to distressed homeowners at the web side of the The Department of Housing and Urban Development.

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