When a homeowner’s monthly mortgage payments soar too high and the value of the property sinks to less than what is needed to pay off the loan, foreclosure is often viewed as the best available option.
However, the strategy of walking away from a property and letting the lender foreclose on it can backfire. In the small picture, a foreclosure can:
- Ruin a homeowner’s credit history
- Make borrowing future money nearly impossible
- Throw a wrench into finding a new job or renting a home
- Cause the default borrower’s federal income tax to rise.
In the broader picture, foreclosures can drive down the value of other homes in the area, making additional foreclosures likely, and erode the state and local tax base, forcing spending cutbacks.
Homeowners should know there are legal options outside foreclosure that a real estate attorney
can inform you of which may allow them to not only protect their homes but even restore their bad credit.
- The Truth in Lending Act (TILA) provides federal protection for some borrowers with subprime mortgages. During the housing boom many lenders violated TILA by lending money on risky mortgages. Homeowners who are now unable to repay these loans may fend off foreclosure by filing a TILA lawsuit. If you think you fall under this category contact a foreclosure lawyer or real estate attorney.
- Mortgage holders with a VA, HUD, FmHA or FHA insured mortgage have protected rights that should be explored when faced with foreclosure.
- Some states have emergency mortgage assistance programs for unemployed or under employed workers who have defaulted on their mortgage. Contact a real estate attorney or foreclosure attorney for the local law.
- Under some circumstances, foreclosure may be prevented by filing bankruptcy. Because this is a very complex area of law, it should be pursued only with expert legal counsel of a foreclosure lawyer or real estate attorney.
- Homeowners temporarily unable to make mortgage payments because of unemployment or illness may be eligible to apply for court protection. The laws governing this apply only to first mortgages on a primary residence -- not second homes -- and are complicated, so a real estate attorney or foreclosure attorney input is recommended.
Many state governments have passed legislation requiring lenders to work with borrowers on foreclosure alternatives
before filing a Notice of Default. At any time during the foreclosure process, the homeowner may avoid foreclosure by paying the judgment plus costs. The default borrower also has the option of paying off the debt by selling the property privately or refinancing through a third party lender.
When a homeowner has little or no equity in his/ her property -- and refinancing or a private sale are not options -- they should consider offering the title back to the lender in order to help their credit rating.
The foreclosure process begins only after the homeowner defaults on his/ her mortgage. (Note: In some states, mortgages are referred to as deeds of trust). A foreclosure notice may result in any of the following:
- The homeowner reinstates the loan by paying off the default amount.
- The homeowner sells the property to a third party during the pre-foreclosure period, allowing him/ her to pay off the loan without defaulting.
- A third party buys the property at a public auction.
- The lender takes over ownership of the property. Bank owned properties are also known as REO properties (Real Estate Owned by the lender).
A homeowner-in-default, who acts alone, without the professional assistance of a real estate attorney or foreclosure attorney, may find it difficult to protect his/ her home against a pending foreclosure. Procedures and filing deadlines vary from state to state. Without the proper guidance or a foreclosure lawyer, a borrower may wind up not only in foreclosure but also with additional debt on top of what they already owe.
Time is of the essence during a foreclosure. For this reason it is important to contact a foreclosure lawyer or real estate attorne immediately. Once the lender begins the foreclosure proceeding there is a time specified in which the sale will occur. If the homeowner does not reinstate his/ her mortgage by the due date, another lien holder can redeem it by paying off the debt. If another person redeems the mortgage, that person acquires legal title to the foreclosed property. If no one redeems it, the foreclosing lender takes title.
Regardless of whether the homeowner redeems his/ her property or a lien holder redeems it, a Satisfaction of Judgment is needed from the lender. This document should show that the debt has been paid and the title to the property is free and clear.
The two most common types of foreclosure in the U.S. are judicial sale and power of sale. 1/ Judicial Sale involves the court-supervised sale of the mortgaged property, with the proceeds going to satisfy the mortgage holder first, followed by other lien holders and finally – if there is money left over -- the former homeowner. 2/ A Power of Sale foreclosure is faster than a judicial sale because it involves transferring the property without court supervision. Similar to a Judicial Sale, the lender and other lien holders are paid first from the proceeds.
If the foreclosure sale brings in less money than the total loan debt, the court may enter a deficiency judgment. This means that the former homeowner still owes money to the lender.
The vast majority of all mortgages today have acceleration clauses which give the mortgage holder the right to declare the entire mortgage debt due when one clause in the mortgage contract has been broken.
Ejectment is the final step in a foreclosure. If the homeowner does not leave his/ her property after the deed transfer, the court can issue an order to have them thrown out.
If you are faced with foreclosure, don't fight it alone. Contact a local real estate attorney or foreclosure lawyer for help.
Who Can Sue?
Any homeowner who feels they are the victim of a wrongful foreclosure can sue with the help of a foreclosure lawyer or real estate attorney. If your forclosure attorney finds evidence that you are the victim of a wrongful foreclosure, you may be entitled to money damages. Sometimes a wrongful foreclosure action also provides the homeowner and the foreclosure attorney with the ammunition they need in order to get their house back.
Borrowers who receive a notice of foreclosure from their bank must act quickly if they wish to stay in their house. Many foreclosure lawyers real estate attorneys handling foreclosures do not charge for the initial consultation. They can quickly review the facts of the case and offer advice on whether the homeowner would be better served by negotiating with or suing the lender.
Before visiting a foreclosure lawyer or real estate attorney, the homeowner should gather up all the documentation that relates to their mortgage. They should also assemble a list of professionals -- such as real estate agents, brokers, loan officers, escrow companies, etc. -- that assisted them in obtaining their loan. The more information they can provide their foreclosure attorney, the better their chance of keeping their home.
While violations of the Truth in Lending Act (TILA) affect only home mortgage loans, a section within TILA deals with refinance. If the lender has not meet all of the requirements of either a mortgage or refinance, the loan may be rescinded following a foreclosure lawsuit.
The entire basis of a foreclosure lawsuit rests on breach of contract. Because mortgage backed securities may change hands hundreds of times, the bank suing may not be the owner of the loan. If the homeowner’s lending institution is unable to produce a copy of the original mortgage contract as proof that they still own the loan and did not transfer it, they have no legal standing to foreclose.
In 2007, Nevada had the highest foreclosure rate in the nation with one foreclosure filing for every 154 households — or 3.6 times the national average. California ranked second with one foreclosure filing for every 258 households. Florida’s foreclosure rate ranked third with one foreclosure filing for every 273 households. Contact a real estate attorney or foreclosure lawyer if you are a victim.
New York and Connecticut are two of the 10 states requiring that foreclosures pass through the court system. Home owners who default on mortgages in these states have more time to protest their foreclosure in the event of error. Lenders in the other 40 states are able to foreclose more quickly because they are not hampered by court involvement.
In June 2008, about 2.75 percent of all home loans, or about 1.75 million mortgages, were in foreclosure.
States vary on the number of days required before a property goes into foreclosure – anywhere from 21 days (Texas) to well over a year in other states. The Center for Responsible Lending in Durham, N.C., says it takes an average of 445 days to foreclose in New York City. A local foreclosure attorney can tell you the local law.
Six steps to take if you are unable to meet your monthly mortgage payment:
- Contact your lender as soon as you realize that you have a problem. Because most lenders do not want to go through the time and expense of taking back your house, they may have options that will solve the problem.
- Respond to all mail from your lender. The first notices you receive will offer good information about foreclosure prevention. Later mail may include the time table of pending legal action. Your failure to open the mail cannot be used as an excuse to ward off foreclosure.
- Know your rights. Carefully read through your loan documents and learn what your lender may do if you do not make your payments. Also find out about the foreclosure laws in your state by contacting a foreclosure attorney or your local Government Housing Office.
- Contact a real estate attorney or foreclosure lawyer who can quickly review the facts of your case and explain your foreclosure prevention options.
- Budget your spending. Keeping a roof over your head should your top priority. Cut all optional spending – such as gym membership, Blackberries and cell phones, cable TV, etc. -- in order to ensure you make your mortgage payments.
- $3,000,000 Jury Award in 2005 against a Texas federal bank accused of at least two wrongful foreclosures. A Corpus Christi jury awarded over $3-million in settlement to two homeowners after finding that the bank acted with "malice". Testimony by two witnesses – both of whom were former bank employees -- presented scary evidence of wrong doing, which included accounts of tampered mortgage documents and forgery.
- $89,000 was fined in a court-ordered settlement in April, 2008, against four defendants charged in a foreclosure civil case in Arizona. The four defendants -- all alleged to be straw buyers -- obtained fake mortgage loans worth millions of dollars which were then used to remove equity from the homes of people facing foreclosure.