The recent foreclosure fiasco, with lenders discovering that the paper trail leading from a defaulting borrower to repossession of the property is littered with errors, has created consternation among many homeowners. Homeowners who are behind on their monthly payments or have already received a notice from their lender about late payments or even a foreclosure notice should take immediate action to make sure their rights are fully protected. (Learn the tactics you can use to prevent your home from being repossessed. Read Saving Your Home From Foreclosure.)
In the best of all possible worlds, every homeowner in the U.S. would have a simple list of what to expect when mortgage payment becomes a problem. But in reality, the rules vary according to your jurisdiction and your individual situation, and even your lender. In particular, some states require judicial foreclosure (court approved) while others are non-judicial states.
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Due to the overwhelming volume of foreclosures in recent years, one of the first places some lenders have struggled to meet common foreclosure standards is in meeting deadlines. State laws impact the timeframe that applies to a foreclosure, but in general a lender will be allowed to start foreclosure proceedings 90 days or longer after the last mortgage payment.
Once a foreclosure procedure has been initiated, homeowners continue to have the right to keep their home and stop the foreclosure if they can bring their loans up to date and pay all the late fees they have incurred. It is very important for borrowers to attempt to negotiate with the lender some type of loan modification or refinance if they want to keep their home and can afford to make lower payments. A foreclosure notice should not stop the negotiating process, and should accelerate it if possible.
If you prefer to move, be sure to look into the option of selling your home before the foreclosure takes place. Until the foreclosure is complete, you still own the property and have the right to sell it. If you must sell it for less than the amount owed to the lender, you can negotiate a short sale with your lender instead of a foreclosure. While you wait for the short sale to go through, you can live in the home. (Are you in danger of losing your home? Protect your credit score with a real estate short sale. To learn more, see Short Sell Your Home To Avoid Foreclosure.)
Homeowners can remain in their home until the foreclosure is finished, as long as they continue to maintain the property and pay the property tax and homeowners insurance. Homeowners cannot be evicted until the court actually states that the property belongs to the lender. In fact, the homeowners have the right to stop anyone from entering their home until after the foreclosure is complete.
Check Your Mortgage Paperwork
Some of your rights and responsibilities as a homeowner and when you are in default on your loan are explained within your mortgage documents and your promissory note. Be sure to read the sections of those documents that touch on defaults and foreclosure.
Consider Hiring a Lawyer
While homeowners in the midst of foreclosure proceedings may not have the financial resources to hire an attorney, they may want to look into how much it would cost to have at least one consultation. Alternatively, they may be able to find an attorney with experience in foreclosure law who will be willing to help as part of the firm's pro-bono work. An attorney or a housing counselor can help you find out how much time you will have to move after the foreclosure is complete. In addition, an attorney can help you if the bank has not given you appropriate notice of the foreclosure.
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Foreclosure Redemption Period
Many, but not all, states have a redemption period after the foreclosure sale when you can still reclaim your home if you are able to buy it back. The rules about the redemption period depend in part on whether the foreclosure is judicial or non-judicial. About half the states have a redemption period that typically lasts several months. (For more related reading, check out Can You Dispute A Foreclosure?)
The Bottom Line
Every homeowner in the midst of a financial crisis and potentially losing a home is probably frustrated and frightened, but taking the steps to consult with a housing counselor, a lender and perhaps an attorney can ensure that the homeowner's rights are protected.
For the latest financial news, see Water Cooler Finance: The Beginning Of A Foreclosure Crisis?
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