Top Mistakes Made in Foreclosures
Provided by HG.org
Mortgage foreclosure is the process by which the bank takes your home for not paying your loan. It can be a long, difficult, and confusing process for many homeowners, and if you are facing a foreclosure you should contact a local, qualified attorney for advice on how to respond. In the meantime, here are 10 common mistakes people make during a mortgage foreclosure:
1. Ignoring calls / letters from the bank.
The foreclosure process can take months to years, and during that time, your lender may attempt to contact you on numerous occasions. Talking to the bank can be embarrassing, you may want to avoid being scolded by bill collectors, or you may have other reasons for avoiding these calls, but ignoring the problem will not make it go away. In fact, not talking to your lender may be the worst thing you can do. If you avoid contact with the lender, you may miss options to save your home, or you may cause your lender to expedite the foreclosure process against you.
2. Not trying to negotiate or restructure.
Many homeowners believe if they are unable to make their payments, foreclosure is inevitable. Lenders, however, usually want to avoid foreclosure. Remember, if they take title, they now have the burden of your property taxes, keeping up the property, and the loss of payments on your note. As a result, you may be able to restructure your loan, especially with the money available from economic bailouts, and save your home, or at least avoid or delay foreclosure.
3. Not considering all your options.
While restructuring a loan is one option, there are others. For example, if you declare Chapter 13 bankruptcy, that may stall the foreclosure process. You may even be able to keep your house by getting the bankruptcy court to restructure your payment plan with an eye toward meeting both your obligation under the mortgage and your other debts.
4. Letting the property go into disrepair.
When most people begin having problems paying their mortgage or see foreclosure on the horizon, they stop taking care of the property. That is a bad mistake. This can make it more difficult for a short sale, more difficult for the bank to sell the house (possibly resulting in you being held liable for even more money even after the foreclosure), can cause a homeowners or condominium association to get involved for violations, and so forth. While you obviously do not want to sink a lot of money into home repairs on a home that is being foreclosed, you also do not want to let the property completely fall apart, especially if there is a chance you could stop the foreclosure or negotiate some other type of deal with your bank.
5. Doing damage to the property.
Some homeowners become angry when they learn the bank will be foreclosing and intentionally do damage to the house. While frustration is understandable, this is not an appropriate course of action under any analysis. Stripping the pipes or fixtures, pouring cement down the drains, tearing down walls, etc. All can have serious legal consequences if the bank opts to report the vandalism, and, as previously noted, this can lead to you being on the hook for even more money after the foreclosure.
6. Not considering a short sale.
A short sale may be a way out of foreclosure that is advantageous to both you and the bank. In a short sale, you find a buyer who is willing to buy your home for less than what is owed. You present the offer to the bank and get them to agree to accept this money as full payment on the debt. This can still hurt your credit, but not as much as foreclosure, and you will avoid the legal judgment against you that occurs in a foreclosure. Be sure to have help from someone experienced with short sales, as some will advise you that it is not possible to get a bank to agree that the short sale is payment in full, meaning you would remain on the hook for the difference in the sale price and the remaining balance on the home. Most banks will walk away from that amount even without an express agreement, but having something in writing is a much sounder practice than keeping your fingers crossed and hoping for the best.
7. Not saving money.
When you know a foreclosure is imminent, you should start saving the money you would otherwise have put towards your mortgage payments. You may need this to find a new place to live, especially since it might be difficult to rent or buy a home with the negative impact of a foreclosure on your credit.
8. Avoiding facing reality.
When you know you are going to be foreclosed on, you need to begin preparing. You will need to secure a new place to live and get packed and get help moving your belongings. The sooner you face the fact that foreclosure is inevitable, the sooner you can start taking are of all these details so you don't find yourself scrambling or without a way to move and a place to live when you are ultimately evicted from your home.
9. Not seeking help.
A lawyer who specializes in foreclosures may be able to help you stop the foreclosure, delay it for a while, or at least negotiate with your lender to avoid further legal problems. Getting help is often a good way to ensure that you do not end up facing legal problems you did not expect, like owing more money even after losing your house.
10. Not fully understanding the legal implications of foreclosure.
This goes hand-in-hand with seeking help. Many homeowners think foreclosure is the end of the situation and that once it is over, they simply walk away, albeit with a mark on their credit. In many states, that is simply not the case anymore. The bank may be able to come after you and get a deficiency judgment if the house sells in the foreclosure auction for less than what you owe or if they cannot find a buyer to pay what is owed (a very common occurrence in today's market). This means you could still end up having to come up with the money to pay the difference between the home's value and your loan amount if you live in a state that allows these deficiency judgments. Make sure you find out about this before foreclosure happens so you can get try to negotiate a short sale or otherwise get the help you need to minimize the chances of a deficiency judgment against you.
Remember, understanding the foreclosure process and having assistance will help you to avoid many of the problems most people face in foreclosure. The best way to do that is by contacting a local attorney who specializes in foreclosure defense. Even if you cannot afford an attorney, many legal aid organizations and local bar associations provide free or discounted legal services for people in foreclosure.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.