Protect yourself
If your home is in foreclosure, here's how to protect yourself:
- Stay put. Don't leave until your name is off the title.
- Keep talking with the mortgage servicer (the bank or company that sends your statements and collects your payments) and try to work out a modification or short sale.
- Put all your communications in writing (the bank officer who helps you today could be fired tomorrow); save a copy of everything. Use certified mail. Have someone witness phone conversations.
- Get help from a counselor at a local social-service agency that's been around for 15 or 20 years or find a HUD-approved housing counselor. Watch for crooks posing as "modification counselors" and "foreclosure counselors" (read "Do's and don'ts to fight foreclosure").
- Consider bankruptcy to stop the foreclosure. Consult a lawyer who specializes in bankruptcy. Follow links to low-cost legal help at the site of the National Consumer Law Center (read "What you need to get foreclosure help").
- Keep in touch with city or county programs to help homeowners in foreclosure. If you don't qualify right now, that could change as new programs emerge.
Banks don't always announce their decision to stop a foreclosure. To protect your interests, you'll need to watch the process like a hawk.
Don't wait for someone to contact you. "The statistics on people who just don't respond at any stage are shockingly high," Lind says. "If you care about your house, don't lay down. ... Even if you can't satisfy the servicer's persistent demands for money, keep talking with the representatives anyway to find out what's going on and to establish a track record that demonstrates your efforts."
Start by learning how foreclosure is done in your state. Each state has its own laws (see RealtyTrac's chart of state laws). There are two basic types:
- Judicial. About half the states require foreclosures to go before a judge. To prove that you've defaulted, your mortgage company must file motions and make appearances in court. Homeowners have the most rights in judicial states, and the proceedings are easier to follow because court filings and decisions are public.
- Nonjudicial. Courts are not involved. If you fail to pay your mortgage, you violate a clause in your contract that allows the house to be sold. Nonjudicial foreclosures can move more rapidly and, with no requirement for documents to be filed publicly, they can be harder to follow. If you live in a nonjudicial state, the only way to keep tabs on your foreclosure is by talking with your mortgage servicer. This may not be easy, but it's crucial.
Judicial foreclosures
In judicial states, you should talk with the servicer and also with the court. Make sure the court has your name and address so you'll get notice of developments, motions and decisions. You'll get a chance to be heard and to voice objections.
There's a good chance that the company you bought your mortgage from packaged it with other mortgages and sold the batch to investors who now own it. It's also important to talk regularly with the investors' lawyer, whose name will be on court filings. Most court documents will be public. Some cities post them online. Court clerks can tell you how to access them. Fox has twice seen homeowners negotiate a loan modification, only to see their homes sold at auction anyway because lawyers for the loan servicer and investors weren't communicating.
Judicial foreclosures generally include these steps:
- Default: The bank or company that owns your mortgage gives you written notice of default, usually after you've failed to make payments for 90 days.
- Foreclosure filing: The bank files a complaint (lawsuit), asking the court to find that your loan contract has been broken and for permission to foreclose to collect its collateral (the home).
- Notice: Everyone with a legal interest in your property gets time (usually at least a month) to say their piece.
- Hearing: The judge hears motions and objections, usually 60 days or more after the filing. The hearing may be held through correspondence instead of in person, especially when the borrower fails to answer the complaint.
- Request for judgment: The bank asks the judge — sometimes at the end of the hearing — to make a decision. If nobody objects, the court may grant the foreclosure.
- Trial: In the few cases where the borrower may have a defense against the lender, a trial is held. Depending on the court's schedule, this usually happens within 30 to 90 days.
- Judgment: Usually it takes a few weeks for the judge to issue a decision. Often, a homeowner is given a few more days to try to pay off the mortgage or negotiate with the bank.
- Execute on the judgment: The court orders your house sold by the sheriff to satisfy your debt. The sheriff schedules the sale, posts the date publicly and has the house appraised. Often, foreclosure auctions are held on the courthouse steps. At this point, the title of the house is transferred to the purchaser and you can be legally ordered to leave your home.
Make the most of a bad situation
Banks may be walking away now, but Fox says she doesn't believe they're gone for good. In three to five years, after the foreclosure crisis has subsided, after home values have risen again but before state statutes of limitation expire, she expects banks to return to reclaim the collateral they abandoned.
"I just don't think that all these people have gotten free houses," she says. "It's just not rational. If they're letting you live there for free, take it. I'm leery about this long term, though."
