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What Happens During a Foreclosure?

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Foreclosure. It is a word dreaded by increasing numbers of homeowners across America. It conjures up images of losing your home, disruption to your family, the stress of relocation, even the threat of homelessness. But if you are facing foreclosure, you need to know what happens during a foreclosure and your rights and obligations.

Foreclosure occurs when you cannot pay your mortgage and the holder of the title to your home, i.e, the bank or the title company, tells you that you no longer have the right to live in your home and you have to move out. What happens? What do you do?

The Foreclosure Process

Presumably, the notice of foreclosure has not arrived at your house without warning. What happens during a foreclosure is a long process that began when you first started missing mortgage payments. After 90 days or even a year of being in arrears, your lender will send you a letter stating that foreclosure will begin unless you make up the missing payments. Your lender will also file a "notice of default" with the local courthouse. If you fail to respond or satisfy your lender, a date for a public sale will be set. After the sale, you will face eviction.

Hopefully, when you fell behind in your payments you immediately contacted your lender and began a dialogue. Most lenders will want to keep you in your home if possible, and may work with you. During the foreclosure process before you actually lose your home, the federal government provides some options.

Loan Modification Programs

A loan modification is an alteration of the terms of a homeowner's mortgage agreement. The changes permit the loan to be reinstated. The end result is a level of payments the homeowner can afford. For homeowners and lenders the U.S. government provides information on the Internet:

But be careful! Scams abound, and distressed homeowners are falling prey to fraudulent "loan modification" companies. Remember these guidelines:

  • No loan modification company can guarantee results.
  • Never make your mortgage payment to the loan modification company.
  • Avoid companies that use official-sounding words like "Federal" or "U.S. Justice". Scam artists use these words to make the consumer believe they are affiliated with the U.S. government.

The "Making Home Affordable" Programs

A key part of the Obama Administration's Financial Stability Plan is Making Home Affordable, a set of programs designed to stabilize the U.S. housing market and help Americans facing foreclosure to reduce their monthly mortgage payments to affordable levels.

One key component is the Home Affordable Refinance Program, which provides homeowners who have mortgages owned or guaranteed by Fannie Mae or Freddie Mac the chance to refinance into monthly payments they can afford. Another program is the Home Affordable Modification Program, which aims to prevent avoidable foreclosures and keep Americans in their homes.

Can I Apply for a Home Affordable Modification?

Qualifications for the Home Affordable Modification Program include:

  • You must be an owner-occupant in a one-to-four unit property.
  • You must have an outstanding principal balance that is equal to or less than $729,750 for one-unit properties; higher limits may apply to properties with more units.
  • Your loan must have originated on or before January 1, 2009
  • Your mortgage payment (including insurance, taxes, and fees) is more than 31% of your gross (pre-tax) monthly income.
  • You cannot afford your mortgage payment because of a significant change in income or expenses.

Online information about the Making Home Affordable programs is available and includes instruction on how to find a HUD-approved housing counselor, determining if your loan is held by Fannie Mae or Freddie Mac, and how to contact your mortgage company to begin a dialogue. Additional resources include frequently asked questions, how to understand your mortgage statement, and a payment reduction estimator.

The risk of foreclosure is stressful and difficult, but there are options that you can explore that may help you to keep your home.