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Foreclosure

Frequently asked questions regarding foreclosure related personal finance topics

Q: How does foreclosure work?

Whenever a mortgage payment is missed, the mortgage lender will initiate phone calls and/or written communication to the mortgage holder to remit a payment. Most lenders, when the mortgage is 90 days past due, will send either a Demand letter or a breach of contract letter, which gives the mortgage holder 30 days to bring the account current. If, at the end of the 30 days, the account has not been brought current, the mortgage lender has the right to begin formal foreclosure proceedings. The lenders attorney will file a Notice of Default with the local court system, giving the mortgage holder 20-30 days to respond. Once that period is over and no response has been received and the court has granted the judgment to foreclose, the Notice of Sale will be filed and a date set at which the house will be sold at a sheriff's auction. All activity prior to the foreclosure sale date is referred to as the pre-foreclosure process. Once the official foreclosure sale has been executed, how much time a homeowner has to leave their home varies by state. In most cases, a sheriff will post the eviction papers on the property.


Q: What happens after a foreclosure?

States have their own set of foreclosure laws, and the process varies from state to state. Generally speaking, after a property is sold in a foreclosure auction or sheriffs sale, the process begins to transfer ownership of the property into the hands of the buyer. A confirmation of sale may be required (which may take up to a few weeks) to ensure the sale was conducted legally and fairly. If, after the confirmation of sale is complete, the house has not been vacated, an eviction process will commence. Some states have laws that allow redemption, which gives a person the right to buy back the foreclosed property in a specified timeframe.


Q: Can I refinance to prevent foreclosure?

Refinancing to prevent foreclosure is an option only if the mortgage has not fallen too far behind. At 30 days past due, your credit report reflects the late payment, at which point your chances of securing a refinance loan drops dramatically. All recent late payments will adversely affect a lenders decision on whether to extend credit. Contact the lender who holds the existing mortgage to assess what options are available. If refinancing proves not to be an option, consider a respected loan modification service or contact a housing counselor.


Q: Can you refinance while your house is in foreclosure?

Refinancing your mortgage while you are in foreclosure is virtually impossible. Consumers facing foreclosure should work closely with the current mortgage holder to explore all available options. This lender will have a vested interest in their customer's financial situation. The more realistic options are to contact a housing counselor or a loan modification service.


Q: What is the timeline for foreclosure?

The formal foreclosure begins when a Notice of Default is filed by a trustee with the local court system. Approximately 60-90 days later the courts will grant the right for the lender to proceed with a foreclosure sale. Roughly 21-30 days later the house will be sold at auction.


Q: Is there government help to stop foreclosure?

The Housing and Urban Development (HUD) offers excellent resources to assist consumers facing foreclosure. The governments Making Home Affordable program provides more resources, including loan modification services. To reach the Hope for Homeowners program, go to the Federal Housing Administrations (FHA) site. Finally, many states, through their Housing Finance Agencies, offer affordable financial options for struggling homeowners.


Q: What are the homeowner's rights on a foreclosure?

State laws vary regarding the specific required foreclosure procedures. Most foreclosures, however, follow a common path. When a lender elects to initiate a foreclosure then that lender must send the homeowner written notice of their intention. The homeowner has the right to remit all past due amounts, with late fees and any other penalties specified in the mortgage contract. Should the homeowner bring the mortgage current by paying the total amount that is delinquent, the foreclose process will be terminated. The homeowner has the right to contact and discuss viable payment options with the mortgage holder and to attempt to come to an agreeable resolution whereby the loan terms are renegotiated in order that the homeowner may keep their home. The homeowner can reside in the property during the foreclosure proceedings. The property must be adequately maintained, and the property taxes and homeowners insurance must be kept current. Those responsibilities apply whether or not the homeowner chooses to remain in the home during foreclosure. If an agreement cannot be worked out before the sale of the house, then in several states the homeowner has what is called the right of redemption. This legal right enables the homeowner to buy the property back after foreclosure. Roughly half of the states provide this right. Redemption laws allow the homeowner to regain possession of the home by paying the foreclosure sale price and a statutory interest rate to the mortgage holder. This right normally has to be executed not more than 12 months after the foreclosure sale. The homeowner has the right to be treated in a fair and professional manner throughout the foreclosure process. When a property is sold at foreclosure, any money earned above and beyond the amount owed on the mortgage, plus combined fees and costs, should be paid to the homeowner.


Q: Can I get a mortgage after foreclosure?

Going through a foreclosure has a severe negative impact on a person's credit record. Consequently, lenders will require a considerable period of time to elapse for a person to rebuild their credit profile. Plan on, at a minimum, 3-5 years before being able to take out another mortgage. The FHA, which assists people with bad credit, requires a waiting period of 3 years after the foreclosure date. Fannie Mae, which has an effect on underwriting guidelines in the mortgage industry, requires 5 years. If, however, a person feels they have extenuating circumstances, the FHA waiting periods may be reduced.


Q: How long can I stay in my home after foreclosure?

The laws and procedures governing foreclosure vary widely from state to state, so it's wise to check the applicable laws in your particular state. Regardless of the state you reside in, once the property is sold, legal ownership is transferred to the buyer. Often, you will have been expected to have terminated residence in the house by this time. Any person going through foreclosure who wishes to remain in the property after this date should communicate this intent directly to the attorney handling the sale order to negotiate a mutually agreeable timeline. For more information of specific state foreclosure laws see United States Foreclosure Laws and Realty Trac's page detailing foreclosure laws and procedures by state.


Q: Where can I find Fannie Mae foreclosure listings?

Fannie Mae operates the website Homepath.com where you can locate and research properties for sale in your area.