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Short Guide To Home
Foreclosure Laws
Definition:
Home Foreclosure is the legal process by which a
lender (bank, mortgage company or other creditor)
seeks claim to a debtors home due to the
occupants failure to comply to the terms of
agreement between the lender and borrower. The
most common reason is failure to make payments on
the loan for a substantial time period. The end
result of a foreclosure is the owner-borrower
loses all rights to his or her home and must
vacate the property.
Foreclosure laws are complex and
vary by state. Additionally, if you have a VA,
HUD, FmHA or FHA insured mortgage, you may have
additional rights not covered by this short
guide. If you are facing foreclosure, discuss
your options with your attorney.
Scope
of the Problem: According to Bob
Chapman of the InternationalForecaster.com: Experts tell
us there will be 1.4 million foreclosures
in 2006, or an increase of some 70% to
100% over 2005. Already in Indiana, one
in 25 homes is in foreclosure, one in 30
in Ohio and one in 40 in Michigan. This
occurs when mortgage payments are 90-days
in arrears. In the upper Midwest, one out
of 49 mortgages were in foreclosure in
2005. In Ohio, the foreclosure rate is up
20% a month and in Michigan it is double.
In Indiana, they have tripled.
The Midwest region
has been the hardest hit as free trade
and globalization caused the loss of
high-paying manufacturing jobs for low
paying service jobs. People should have
never been offered exotic loans ever, and
at least 45% should never have been
offered a loan in the first place.
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Lower wages
and inflated costs have exhausted the withdrawal
of equity from homes. The piggy bank, the ATM
home cannot be tapped anymore. In 2006 alone, two
million homeowners are at risk for foreclosure or
2.5% of the national total. Nationally, 1.6% were
foreclosed in 2005. Sixty percent are in the
Midwest and except for Chicago these homes have
appreciated very little. This is the result of
sub-prime lending. In a number of states, such as
Pennsylvania, mortgages often are greater than
the value of the home.
Twenty percent of sub-prime
loans in Michigan, Missouri, Tennessee and West
Virginia are in foreclosure. ARMS have put 14.7%
of all mortgages in Michigan in foreclosure.
Update (Aug. 14, 2008): Nationwide,
more than 272,000 homes received at least one
foreclosure-related notice in July, up 55 percent
from about 175,000 in the same month last year
and up 8 percent from June, RealtyTrac Inc. said.
That means one in every 464 U.S. households
received a foreclosure filing last month. (ABC
News)
Two types of Foreclosure:
In most states, there are two types of
foreclosure legal proceedings:
1. In a Strict
Foreclosure , the lender will bring
court action against the borrower. The court will
then set a deadline for which the owner-borrower
must pay the mortgage debt in full PLUS attorney
fees and court costs. If the deadline passes
without full payment, deed to the property passes
automatically to the lender WITHOUT public sale
of the property. (Also known as: deed in lieu of
foreclosure).
2. In a Foreclosure by
Sale, the lender will bring legal action
against the owner-borrower and instead of a
deadline, the court will establish a date for
public sale of the property. The property is then
auctioned by a sheriff, marshall, or some other
officer of the court. The deed or rights to the
property is then awarded to the winning
bidder.Typically, banks or lending institutions
will bid for the balance of debt owed on the
property. Money from the auction will first go to
pay for court costs, auction costs, then to the
lender and any other liens on the property. If
any money is left over, this will go to the
owner-borrower. HOWEVER, if the home sells at
auction for below the debt amount, you will still
be liable for the balance owed plus court fees
and auction costs and any other liens on the
property.
Foreclosure Proceedings
and saving your home from Foreclosure:
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The process of foreclosing
on a home varies by state but usually
begins with a sheriff or marshal serving
a Summons and Complaint
to the owner-borrower. Defending yourself
against this summons can be complex and
expensive and you should seek the aid of
attorney. However, you do have some
rights you can pursue to prevent
foreclosure. Those with HUD, VA, or FHA
loans have more rights and assistance
available to them.
According the Housing and
Urban Development (HUD) website, "Your
lender may be able to work with you to
obtain a one-time payment from the FHA
insurance fund to bring your mortgage
current. (Special conditions
apply)...When your lender files a Partial
Claim, the US Department of Housing and
Urban Development will pay your lender
the amount
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necessary to
bring your mortgage current. You must execute a
Promissory Note, and a Lien will be placed on
your property until the Promissory Note is paid
in full. The Promissory Note is interest-free and
is ude when you pay off the first mortgage or
when you sell the property."
It is important to note that if
you voluntarily sign your deed over the lender
this would be a "Voluntary Foreclosure"
and could still damage your credit rating.
However, it could save you the public
embarrassment of a public notice and auction of
foreclosure on your home. Under this option, the
bank will work with a real estate agent to sell
your home and you will not be held liable if the
home sells below the debt amount.
Bankruptcy is another option that
allows you to save your home but new changes to
the law make the timeline for filing bankruptcy
almost impossible to use this option if
foreclosure proceedings have already begun.
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ideal time to save your home is when you
receive payment delinquent notices from
the bank BEFORE they file foreclosure
legal proceedings against you. If you
have equity in your home, it might be
possible to rework your loan and mortgage
payments and add the past due amount to
the balance of the loan. If you are
receiving delinquent notices, do not
delay in making an appointment with your
lender to try and work out an
arrangement. Remember that your
situation, attitude, openness and
willingness to work on the problem will
all work in your favor. The Virginia Cooperative
Extension office notes that: Mortgage
lenders are NOT in business to foreclose
on property. They want to work with you
and help you find a way to keep your
home. The longer you wait, the more
difficult it is for them to work with
you. If you are three months behind in
your mortgage payments and the lender has
not heard from you, the company will feel
justified in pursuing foreclosure. It
will assume that you do not intend to
pay.
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