Avoid Foreclosure

Short Sale Help

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Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.  Foreclosure laws are based on the statutes of each state.

There are 3 types of foreclosure;

  • Non-judicial

  • Judicial

  • Strict

Illinois is a judicial foreclosure state.  This is the most preferred of the three types.  It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor.  Because it is a legal action, all the proper parties must be notified of the foreclosure.

How foreclosure starts;
(Information provided by HUD.gov)

  • First month missed payment - your lender will contact you by letter or phone.

  • Second month missed payment - your lender is likely to begin calling you to discuss why you have not made your payments.  It is important that you take their phone calls.  Talk to your lender and explain your situation and what you are trying to do to resolve it.  At this time, you still may be able to make one payment to prevent yourself from falling three months behind.

  • Third month missed payment - after the third payment is missed, you will receive a letter from your lender stating the amount you are delinquent, and that you have 30 days to bring your mortgage current.  This is called a "Demand Letter" or "Notice to Accelerate".  If you do not pay the specified amount or make some type of arrangements by the given date, the lender may begin foreclosure proceedings.  They are unlikely to accept less than the total due without arrangements being made if you receive this letter.  You still have time to work something out with your lender.

  • Fourth month missed payment - now you are nearing the end of the time allowed in your Demand or Notice to Accelerate Letter.  When the 30 days end, if you have not paid the full amount or worked out arrangements you will be referred to your lender's attorneys.  You will incur all attorney fees as part of your delinquency.

Timeline varies by State.

  • Sheriff's or Public Trustee's Sale - the attorney will schedule a Sale.  This is the actual day of foreclosure.  You may be notified of the date by mail, a notice is taped to your door, and the sale may be advertised in a local paper.  The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by State.  In some states it can be as quick as 2-3 months.  This is not the move-out date, but the end is near.  You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.

  • Redemption Period - after the sale date, you may enter a redemption period.  You will be notified of your time frame on the same notice that your state uses for your Sheriff's or Public Trustee's Sale.

You have several options to consider to avoid foreclosure.  Below is a list of them along with a brief description of each option.

A temporary agreement that delays payments for a short period of time.  Mortgage lenders only allow forbearance if you can prove you'll eventually acquire funds.  Some common examples would be a tax refund or a bonus where you can show future earnings that can bring your mortgage up-to-date.

If you're behind on your mortgage payments, a reinstatement can take place when you make a lump sum payment by a specified date, bringing your account back to current status.  Lenders often combine reinstatement with forbearance.

Repayment Plan
If you're behind on your payments, the mortgage company may give you a fixed amount of time to catch up, by combining a portion of your past due amounts with your regular payments, allowing you to get current.

Loan Modification
The terms of your loan can be adjusted. Changing the amortization table or lowering your interest rate can make a big difference, reducing your monthly payment amount to something you can afford.

Federal Foreclosure Help
In response to the recent mortgage crisis, the president has announced a refinancing program called FHASecure. This new product offered through the Federal Housing Administration (FHA) is estimated to help some 240,000 homeowners prevent foreclosure. This is rather notable, as the FHA's previous policy would not allow for refinancing of borrowers in default. It does, however, come with restrictions; you must meet the following criteria to qualify:

1) You must have a history of on-time mortgage payments and a decent credit history to qualify.
2) Your interest rates must have or will reset between June 2005 and
December 2009.
3) You must have 3 percent cash or equity in your home.
4) You must have a sustained history of employment.
5) You must have sufficient income to make your mortgage payments.

The primary purpose of FHASecure is to provide help to the well-meaning borrowers who may have been lured into costly loans featuring teaser rates, and may be facing mortgage foreclosure. You can find more information on the FHASecure plan at http://www.fha.gov.

Severe Problems?
A few options for individuals dealing with severe financial circumstances or can no longer afford their mortgage payments and want to stop home foreclosure:

Short Sale
A deal between the homeowner and lender to sell the property for less than it's worth, with the mortgage lender taking the loss.

Deed-in-lieu of foreclosure
This last resort allows you to "give back" your property to the lender. This will leave a mark on your credit record, but it will stop foreclosure, which is much more severe.

Credit Counseling
A non-profit credit counseling agency may be able to help you prevent a real estate foreclosure. Be especially leery of fee-based groups approaching you with bank foreclosure solutions. They'll often recommend (at a cost) what we've covered above, most of which you can do on your own or with the assistance of a HUD-approved counseling agency. You may find a HUD-approved housing counselor online or by calling (800) 569-4287.