Short Sales & The Foreclosure Process
There are a lot of alarming statistics out there about foreclosures. But when you understand what a foreclosure is and how it works, it takes some of the fear out of the unknown.
A New Jersey mortgage foreclosure happens when a lender exercises its lien against a borrower’s home in order to sell the property to pay off the mortgage loan.
This, of course, only happens after the borrower has failed to make mortgage payments for an extended period of time, has ignored notices that the payments are behind, and hasn’t bothered to call the lender to see what can be worked out.
So how did we get from popping the champagne cork on closing day to having our belongings set out on the lawn? It didn’t happen overnight:
- Step 1 - A Notice Of Default (or Lis Pendens) is recorded by the bank
This happens after you’ve missed a payment. Usually, especially in the old days, it happened after several payments were missed. Banks are tightening the reins, however, trying to move homeowners to action long before the point of no return. So you’ve missed one or several payments, and now the bank officially records the notice of default.
- Step 2 - Opportunity to reinstate the loan
This sounds pretty hopeful, doesn’t it? You can reinstate your loan! You have the power to stop the foreclosure process anywhere along the way—until five days prior to the auction of your home…but we’re getting ahead of ourselves. How do you reinstate the loan? Bring your loan payments current plus the late fees and whatever penalties are assessed, and you have just reinstated your loan. You’ve stopped the foreclosure. You won’t lose your house.
- Step 3 - The date of foreclosure is set by the bank
But what if you can’t beg or borrow the back payments and other fees? Is all hope lost? Not quite. We’ve come to the third step of the foreclosure process: the bank sets a date of foreclosure. Typically, the date is three months (about 90 days) after the bank sets the notice of default. You are allowed to live in the house until the actual date of foreclosure. You cannot be evicted or thrown out of the house until this date. You still have time to come up with that money.
- Step 4 - A Notice Of Trustee Sale is prepared, published and posted
Now the bank prepares the notice of trustee sale. The bank will publish it (you’ve seen those notices in your local newspaper). The bank then mails you a copy of the notice and physically posts it on the outside of the house. You still have time to bring the payments current.
- Step 5 - The house is sold at a foreclosure auction
We’ve come to the final step: the foreclosure auction sale. If you are still living in the house and it is sold to a bidder at the auction, the winning bidder can have you evicted by the sheriff within 24 hours. If the house doesn’t sell, the bank will show the house just like you would if you were selling the house yourself. The bank may also have you evicted within 24 hours, or the bank may decide to let you stay until the house sells.
The bottom line is...
If you miss a payment, don’t let it turn into two.
Find the money, even if you have to borrow from family or friends. There are also numerous ways to receive free advice on which programs you may qualify to use, such as the HAMP and HARP programs, to avoid foreclosure and lower your monthly mortgage costs.
Although the process can be stopped anytime up to five days before the foreclosure date, the earlier you intervene, the easier it is to stop. The foreclosure process can be long, stressful and severely damaging to the homeowner's savings, assets and credit.
It's a frightening situation.
However, there are still some other options available once a foreclosure is imminent and you are unable to refinance or modify your mortgage:
- A Mortgage Release, or deed-in-lieu of foreclosure, is where you voluntarily transfer the ownership of your property to the owner of your mortgage in exchange for a release from your mortgage loan and payments. Options are available (sometimes with a cash relocation incentive) to help you leave the home immediately; stay in the home for up to three months without paying rent; or lease the home (at market rates) for up to one year. Depending on your situation, you may be required to make a financial contribution to receive a mortgage release.
- You may also qualify for a Short Sale—even if you don’t think you can (or haven’t been able to) sell your home.
A short sale, also known as a pre-foreclosure sale, is when you sell your home for less than the balance remaining on your mortgage. If your mortgage company agrees to a short sale, you can sell your home and pay off all (or a portion of) your mortgage balance with the proceeds. Depending on your situation, you may be required to make a financial contribution to receive a short sale.
What are the benefits of a short sale?
- Eliminate or reduce your mortgage debt
- Avoid the negative impact of foreclosure
- May be eligible for up to $3k in relocation assistance in some cases
- Start repairing your credit sooner than if you went through a foreclosure
- May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (up to 7 years)
A short sale allows the homeowner to play more of an active role in the process. In a short sale, there are still negotiations, meetings and paperwork for the homeowner to weave through. But the process plays out more like a traditional sale, as opposed to a litigious and pressure-packed foreclosure proceeding.
Gather your financial information—Make sure you have your basic financial and loan information on hand when you call your mortgage company. You’ll need:
- your mortgage statements, including information on a second mortgage (if applicable);
- your other monthly debt payments (e.g., car or student loans, credit card payments); and
- your income details (pay stubs and income tax returns).
Explain your current situation—be ready to outline your current hardship and explain why you are having trouble making your mortgage payment, the reasons why this is a long-term problem, and inform your mortgage company that you want to sell your home to avoid foreclosure.
Your mortgage company will need to understand the reasons why you are having difficulty in order to find the right solution for you.
Contact your mortgage company or the Fannie Mae Mortgage Help Network - tell them you are interested in a Short Sale and you want to see if you qualify.
Contact me by e-mail or telephone at 732-800-6260 so we can discuss a strategy to market and sell your home (if you have not already done so).