If you have done everything you can to avoid foreclosure but nothing has worked and you are still faced with a foreclosure, let’s at least make sure you understand what typically happens.First of all, foreclosure is a legal term for the process the bank goes through to take ownership of your home. It starts with you falling behind on your mortgage and ends with the bank selling your home. Depending on what state you live in will dictate how long the foreclosure process will actually take.
In Massachusetts, for example, thanks to a new bill, the Act to Stabilize Neighborhoods, lenders are now required to send a 150-day right to cure notice rather than a 90 day notice. This right to cure period starts once the banks files an “intent to foreclosure” at the registry of deeds.
As an example, if you receive an intent to foreclose from your bank after not paying your mortgage for 5 months, then under state law, you would have 150 days before an auction takes place. If you live in New Hampshire, on the other hand, where there is less foreclosure protection, banks are foreclosing in 6 months or less. Please remember, these timelines are examples, we have seen a foreclosure in as little as 4 months and as long as 2 years. One thing is for sure, banks are continuing to become more and more aggressive with foreclosures, and their goal is to continue to decrease the timelines.
Another event in the foreclosure process that happens a couple weeks prior to the auction is a public notice of the foreclosure, filed online and in the newspapers to notify the town and the state. On the actual foreclosure date, the auction will take place and since most homes have mortgages on them that are higher than what they are worth, the bank will buy the home back and be the new owner of record. Then, a Sheriff or constable will serve notice to evict you if you have not already moved out. Once the home is vacant, it will be put on the market and sold to whomever will pay the bank what they are asking for it.
We are not going to downplay the emotional impact that this can have on a homeowner. Foreclosures can be embarrassing and can create a lot of negative feelings in the neighborhood or the condominium complex but are still a daily occurrence in this real estate market.
What Are The Risks with a Foreclosure
Many homeowners choose the foreclosure option because they are unaware of the risks and ramifications of it. So really what is so bad about getting foreclosed on? We have identified the top 3 risks of going into foreclosure:
1) You Owe the Bank Now and Will Owe Them Later!
Banks are continuing to pursue the defficiency balances when the bank ultimately sells the property. As an example, if the outstanding balance on your mortgage is $300,000 and the bank forecloses and sells the home for $200,000 then the bank has the right to try and collect the $100,000 difference plus all of their expenses like attorney fees and closing costs.
It is not coincidental that a foreclosure is many times the precursor to a bankruptcy since other assets can be liened and even wages garnished in an attempt to collect on the mortgage balance. In fact, Terri Edwards, the head of Fannie Mae, stated in an article that they will take legal action against borrowers who strategically default in order to recoup mortgage debt.
2) Credit Implications and Opportunity to Buy Again
Keep in mind, the biggest impact on your credit is missed mortgage payments. Since a foreclosure allows for the most missed payments it creates the most negative credit impact. As outlined in the section, Credit Effects of a Short Sale, we have always seen a short sale impact their credit less than a foreclosure. In addition, you are able to get back out and buy again much sooner if you avoid foreclosure.
As challenging as the home has become, most home owners “walk away” expecting the situation to be over. In a foreclosure this is not the case at all. The bank can actually pursue you for the money you owe them for up to 20 years. Most homeowners are unaware of this and think that since they haven’t heard from the bank that everything must be fine until the phone rings from a debt collector or a certified letter arrives from an attorney. Walking away never creates closure, it leaves the door wide open for issues down the road.
To read about actual homeowners that have been foreclosed on and their experience, read the Boston Herald article, “Nightmare Returns” and the Wall Street Journal article, “The House is Gone but the Debt Lives On.”
I would like to express my deepest thanks for the sale of my home by the McGeough Lamacchia team. My husband was out of work for a year and we were struggling to pay our mortgage. We tried a loan modification two times and they denied us. The process each time took about 6 months and the communication, waiting, and stress was horrible. It was no help at all. My sister was buying a home through McGeough Lamacchia Realty and she recommended I consult with them because they specialize in short sales. I made an appointment and the process started immediately. The team had great communication skills and had the expertise to proceed with the short sale of my home. The office hours were very convenient and communication was excellent. The team went above and beyond to make sure we were comfortable with the process and to make sure our home was sold. Thank you,- Ellen & Larry M., Lowell, Massachusetts