Determine where you are now in the foreclosure timeline
When facing foreclosure, you can keep the house, sell the house or allow the foreclosure to proceed. What you can do depends on where you are in the foreclosure timeline and if you have recovered from your financial crisis.
- If your mortgage is due on the first, you are delinquent on the second.
- The first notice of delinquency is mailed on the 16th of the month. You are charged a late fee.
- If you do not pay by the 30th, the loan is in default; you are sent a second notice.
- When a loan is 60 days past due, your bank, credit union or mortgage company speeds up the loan and warns you that foreclosure is the next step.
- After 90 days past due, foreclosure begins. In Michigan, the most common foreclosure notice is by advertisement.
- The attorney for your bank, credit union or mortgage company advertises the property for sale in a newspaper for four weeks in a row.
- A Sheriff’s Sale is held on the published date. A deputy conducts an auction and the highest bidder wins (usually the bank). If the sale is adjourned (delayed), a notice is posted at the sale location and in the newspaper.
- After the Sheriff’s Sale, the highest bidder gets a “Sheriff’s Deed” to the property. It lists the last date that you can redeem (take back) the property, usually in six months to one year.
- During the redemption period, you can raise the necessary money to get the property back by getting a new mortgage or you can sell the property or you can live in it for free and leave by the end date.
- In order to get your property back, you must pay off the mortgage, interest and late fees, court costs, attorney fees, title and appraisal fees, taxes and insurance.
- In order to sell the property, you must pay everything listed above or in the case of a short sale, get permission and a waiver of deficiency from the bank.
- In order to live in the home until the end of the redemption period (usually six months), you pay the utilities and do general upkeep.
Keep Your Home
MAKE A WORKOUT PLAN WITH YOUR BANK / MORTGAGE COMPANY
- Write a budget. Cut all unnecessary spending. Increase income. What can you promise and realistically do? You should spend 30% or less of your gross income for a mortgage and only 11% for all other monthly debt payments.
- Call your bank or mortgage company as soon as you have a budget. Ask to speak to someone in the Loss Mitigation Department and ask for a Workout Package. A workout is a plan between you and the bank or mortgage company to decide how you will pay your mortgage default. To negotiate a workout, know what to ask for and be assertive (not rude).
- Fill out the workout form promptly, keep a copy and send the form back by certified mail. Include a Hardship Letter that explains your financial crisis and when and how you will recover.
- Keep a record of all calls and letters: dates, times, names and phone numbers.
- If the lender does not allow partial payments, save the money in a separate account each month. You will have a lump sum for a workout or to move if you lose the house. Do not pay other debt with it. Focus on saving the house.
- Short-term: Request a delay of the foreclosure sale. Because the Sheriff’s sale cuts off all workout possibilities, get a written agreement from your bank or mortgage company to delay the sale. Keep on top of dates. Move quickly.
- Long-term: Pay the bank payments and fees and keep payments current.
- Forbearance: Eliminate the default (what you owe) by making your regular house payment AND some of the past due amount for a certain number of months. This method works if you had temporary financial difficulties and are back on track AND you have enough money to pay the extra amount each month. Do not agree to an unrealistic plan.
- Loan Modification: When you can no longer afford the original loan terms due to a permanent change in circumstances AND the bank or mortgage company wants to avoid foreclosure too you can ask them to:
- Reduce the interest rate (cost of borrowing money
- Extend the loan – stretch out the loan, Pay for additional years.
- Re-figure the loan using your equity (what you own of the home). The past due amount and fees are rolled in.
- Combine approaches.
SPECIAL FHA / HUD MORTGAGE PROTECTIONS
- Forbearance – If you have a reasonable chance to recover from the crisis and begin paying again, the bank or mortgage company may agree to reduce or suspend payments for up to 12 months. After that period ends, you make the original payment and a small installment on your missed payments each month.
- Partial Claim – If you are 4-12 months behind but have not recovered from the crisis, the bank or mortgage company can loan you money to get your monthly payments caught up. Then HUD pays the bank or mortgage company and puts an interest-free loan as a lien against your property. When you sell or refinance, you pay it back.
FANNIE MAE LOANS HAVE ADDITIONAL FORECLOSURE PROTECTION AS WELL.
REFINANCE YOUR MORTGAGE WITH ANOTHER LENDER WHEN:
- You have high enough credit scores to refinance.
- You have enough income to support the new mortgage amount, including taxes and insurance.
- You would have a lower interest rate or longer payment period.
- You refinance a low interest first mortgage and a high interest home equity loan into a single medium interest mortgage that is affordable and includes taxes and insurance.
HOW TO REFINANCE:
Shop ‘til you drop! Be honest with banks, credit union and mortgage companies. Tell them your credit score and current mortgage rate. Ask if they could do better. Compare interest rates, length of the loan and closing costs. Get an idea what you would qualify for, then apply to a reputable lender. Do not assume that you can only get a high interest loan.
This is for people over 62 years of age only. You use the equity in your home to live on and you do not have to pay it back until you move. It is a very expensive mortgage and may not solve your financial problems, but in some circumstances, it is a good choice.
LEGAL POSSIBILITIES TO SAVE THE HOUSE
This information is not legal advice
Procedural defenses – If anything was done incorrectly with the foreclosure process, the lender has to start over. It buys you time.
Bankruptcy – slows everything down so you have more time to get money together, sell the house or get rid of other debts so you can pay the mortgage.
Substantial hardship or substantial equity – Terrible circumstances or a house that is almost paid off could result in special judicial consideration.
Truth-In-Lending Rescission – A complicated, but powerful tool when dealing with predatory mortgage companies and home improvement companies. It I only for refinanced mortgages, home equity loans or credit lines, debt-consolidation loans and home improvement loans that involve the house as collateral. Was the lender dishonest? Did a bad loan put you at risk of foreclosure? A truth-in-lending rescission cancels the mortgage and therefore, the foreclosure.
- If the foreclosure sale date is too close or the lender will not agree to a workout, try to save you house through the courts.
- Often, people postpone getting legal help until it is too late. Others walk away from their home sin frustration leaving themselves without equity and vulnerable to deficiency claims.
- Most lawyers will give you a free 30-minute appointment. Go prepared. If you decide to proceed, you will need to pay a retainer of $1,000.00 – $1,500.00
Sell Your Home
PUT THE HOUSE ON THE MARKET WITH A REAL ESTATE AGENT AND WITH THE RIGHT PRICE
- Ask the bank or mortgage company to delay the foreclosure sale and for permission to complete a pre-sale. Get it in writing.
- In a bad real estate market, do not assume that the house will sell quickly.
- A pre-sale works IF the sale price is high enough to pay off the mortgage, any home equity loans, back taxes, selling expenses and foreclosure fees.
- Ask the bank or mortgage company to delay the foreclosure sale and for permission to complete a short sale. Get it in writing.
- Ask the lender to “cancel any deficiency”, so that the lender will not demand repayment of the rest of what you owe and does not report the deficiency to the credit bureaus. Get commitments in writing.
- Do a short sale ONLY after you learn about the income tax consequences of a short sale. The IRS calls the amount of debt that is canceled income! If you have lost income and will be in a lower tax bracket, it could work out fine. In other cases, you are left with a big tax bill. Talk to the person who does your income tax or a tax lawyer. If you will owe the IRS, how will you pay them? Sometimes (not always), letting the foreclosure proceed is a better choice, if by doing a short sale, you get stuck with a big tax bill that you cannot pay.
- Some mortgages are assumable; others are not. Look at your original mortgage documents or ask your bank / mortgage company.
- See a lawyer before you do this because when someone else assumes the mortgage, they become the new owners of the home. It may work, but you need to fully understand it and avoid some major pitfalls.
- Sometimes, adult children assume their parents’ mortgage or vice versa in order to keep the equity (the amount of the house that you own) from being lost to foreclosure and to keep the equity within the family. Consider this if you have an assumable mortgage, have a lot of equity in your home and have a relative who has the money, credit and willingness to assume the mortgage.
- DO NOT DO THIS with strangers or real estate companies who convince you that it is a way to save your house; it is not. You will become a renter and they will have “stripped” or taken your equity.
YOU VOLUNTARILY TURN OVER YOUR HOUSE TO THE BANK OR MORTGAGE COMPANY
- Almost always a bad idea for you and a good idea for the bank or mortgage company. DO NOT DO THIS UNLESS you get something in return and in writing.
- Ask the bank or mortgage company to
- Cancel any deficiencies and fees.
- Eliminate negative credit references.
- Allow you to have extra time in the house.
- Pay your moving expenses.
- Record information on calls.
- Open and keep letters.
- Get agreements in writing.
- Never sign a release giving up all legal claims until the actual workout agreement with the bank or Mortgage Company is finalized.
- Stay organized. Stay Focused.
- MORTGAGE ASSUMPTION: A third party takes over your mortgage, brings it current and continues paying it.
- SHORT SALE: The bank or mortgage company allows you to complete a sale even though the price is less than what you owe them.
Let the Foreclosure Proceed
Letting a foreclosure happen should be a decision about what is possible in your situation and what is best for you and your family. Do this if you have explored all choices and realize that this is the only option or it is the best option. If you are passively letting the foreclosure happen because you do not know what to do or are discouraged, face your situation and get help – something better may be possible.
If you cannot keep the house and have not had success selling it or negotiating with the lender for a deed in lieu of foreclosure, you decision is about when to leave; immediately or near the end of the redemption period? For most people, the redemption period is six months after the Sheriff’s Sale.
STAYING IN YOUR HOME UNTIL THE REDEMPTION PERIOD ENDS
Go back to your budget. Without the house payment, look at your income minus expenses. What money do you have to work with for your next living situation? Ask yourself these questions:
- Will you be better off moving quickly because the cost of rent, utilities and renter’s insurance will be less than the monthly upkeep of the house you must leave? By moving early in the redemption period, are you facing reality and the need to start over?
- Or will you be better off staying because you can save money like mad for the first month’s rent, security deposit and moving expenses? Will staying give you more time to look for new housing and to sell item? Or by staying in the house, are you clinging to the past?
LIFE AFTER FORECLOSURE
- A financial crisis is a very stressful time, but you are not your house. You can start over and have a good life. Have hope.
- Spend less than 30% of your gross monthly income on rent.
- Do not rent a storage unit. Recovering from a crisis takes time and finances will be tight. Many people end up losing their items in the storage unit for non-payment. Sell your stuff or store it at a relative’s place for free. Concentrate on the essentials. Travel light!
- Take a money management class. Use a budget. Spend less than you earn.
- Get renter’s insurance and car insurance. Search for affordable health and dental insurance. Insurance protects you from going backwards.
- Limit junk mail so you are not overwhelmed by credit offers. The maximum amount of debt that you should have (not counting the mortgage) is 11% of your income. Do not go overboard.
- A lender will consider you for a mortgage two to four years after a foreclosure if you have steady employment, modest debt and a food payment history during that time. You will qualify for first-time homebuyer programs after three years of not owning a home.
Source: MichiganState Housing Development Authority, Housing Counselors Training Manual Facing Foreclosure….What Can You Do? Provided by IoniaCounty MSU Extension, 50 E. Sprague Rd., Ionia, MI48846, (616) 527-5357. MSU Extension programs and materials are open to all without regard to race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, marital status or family status. MSU is an affirmative action equal opportunity employer. Handouts provided by Anne Lilla, MacombCounty MSU Extension.