forclosure timelines/ advise

[flowerseverywhere]

My friends have been caught in an economic tsunami. Each lost a high paying job due to a downsizing and plant closing, and have had to take whatever they could find. They live in a modest home, but it is severely upside down as housing prices plummetted with the job situation in their town. Now they are faced with some serious home repair bills.

They are trying to refinance so at least they can lower their payment and move forward a little on the principle, but it has been dragging on for many months and the latest signals from the bank are not good. They are considering just letting the house foreclose if they cannot refinance and will be seeing an attorney of course before this drastic step.

for those who have gotten caught up in these horrible situations, is there any sources of info or even stories that might help them move forward. How does a foreclosure really work timewise? Obviously, as working people who have always paid their bills they are devestated but can't see any way out.

[catherine]

My foreclosure was in the 80s, so I don't know if things have changed, but from listening to Dave Ramsey callers, I think it's still true that the wheels of finance/foreclosure turn a LOT slower than you would think. It's not a case of miss two payments and the sheriff is at your door, thats for sure. I stayed in my house without paying a mortgage for probably a year and a half (can't remember specifically at this point). At the last minute, my real estate expert uncle was able to get a Deed In Lieu of Foreclosure--no real difference for practical purposes. But it really took a LOOONNNGGG time, complicated I think by a bank merger that took place during that period.

From what I recall the Title in Lieu of Foreclosure wasn't on our credit report. Maybe your friends should look into that... Also a short sale, which will still be a negative on your credit, but it's looked a bit more favorably upon than a straight out foreclosure

[sweetana3]

Be careful when discussing foreclosures and whether it is a first mortage, second mortgage, or Home equity line of credit. I have read that there are significant differences on the process and result. So when researching, make sure that you are comparing apples to apples and not misunderstanding the terms that apply to a first mortgage and applying it to a different type of loan.

[SteveinMN]

catherine and sweetana both offer great advice.

I've been through the process a couple of times now, both times on the periphery. The house my mom lives in now -- my rental property -- went into foreclosure when the previous owner decided he didn't need to make mortgage payments for a few months. In that case, the sheriff notified both my mom (as the renter) and the landlord/owner that the place was foreclosed upon. In Minnesota, that notice of foreclosure triggers a six-month "redemption period" in which it is possible for the owner to pay up and continue to own the property or to negotiate its sale. I don't think the previous owner understood the process very well, but for my mom it was exactly six months. We moved her elsewhere a week or two before the deadline and the lender came to secure the property six months to the day after the notice was served. Turns out that landlord lost another rental property and his own home to foreclosure, too. I should throw in that there was a brief discussion of a short sale, but the amount of money outstanding on the mortgages (1st and 2nd) came to way more than the house would have appraised for even in the go-go pre-crash days. The happy ending is that I bought the house when it came back on the market for way below market and she's back in it for as long as she can live there.

Shortly before we married, DW put her house on the market. It didn't go well. The house was on the market a total of 19 months and, several price markdowns later, during the housing crash, we persuaded her lender to accept a short sale on the property. There really was no waiting out the market; just paying the mortgage and minimal utilities (plus the increased costs of insuring an empty house) would have cost far more than we could ever have recouped on resale. And paying two mortgages was doing a number on us financially. So now DW has a short sale on her credit history, but it's better than a foreclosure or bankruptcy.

For your friends, I would recommend a Web search for foreclosure <name of state>. They also can look up TARP. Wade past the interminable listings of lawyers and credit agencies to find county and state Web sites that cover this particular situation. They'll find out what their rights and responsibilities and options are.

Tell them to keep on their lender. Many lenders drag their feet on foreclosures and shorts; if the lender is not local, there's probably one overworked employee at the lender whose job it is to keep up with all of the activity for a number of states. The squeaky wheel gets action. Have your friends note names, numbers, and dates/times/contents of conversations. Insist on anything in writing, positive or negative. Your friends should negotiate with the lender the way they would any other purchase. It helped that DW could keep showing her lender comps that demonstrated it was unlikely we were ever going to be able to get the amount of the mortgage for her house. If your friends can keep the house with a refinance, it may help them to use default as leverage. They may find out that they have to miss a mortgage payment or two before the lender will even talk with them. Ugly, but reality.

It may help your friends to find a real-estate agent who specializes in shorts and foreclosures; it's probably a more-widely-held skill now, but when we were dealing with it, few agents had useful experience in those kinds of sales. There's a lot of paperwork and hurry-up-and-wait; the agent needs to know this and to know that (s)he needs to be a bit of a nudge to get things moving.

And then tell your friends that this is surviveable. They may want to consider what is called "strategic default" (aka "jingle mail" or "walking away"). It's controversial and ugly, but if Dow Jones corporations can walk away from deals that no longer make financial sense, individuals should be able to, as well (Citizens United). Urge them to go for Certificate in Lieu and, if not that, a short sale, and, if not that, foreclosure. There's no need to be rash, but they need to compartmentalize how much this eats up of their lives, and there may be value in just moving on after a while. Owing to my early retirement, DW and I are on a cash-only basis for the next several years. But we're doing okay and we don't have Mr. Debt knocking on the door. Good luck to them.

[Jilly]

Steve, what a brilliant reply. Everyone else, too :+1:, but that is truly brilliant!

[Jill]

Tell them to absolutely go see a lawyer. I had already decided I was going to short-sale my condo and went to a lawyer just to get advice on how to do the paperwork. I had quit my job to stay home with my son so I thought with no income there wasn't much they could do to me. He asked me many detailed questions about my situation and told me that since I'd gotten married since the purchase, that the bank could sue my husband for the difference (35,000 + legal fees). I'd had no idea DH could be involved at all. Turned out the best thing for us was to let it go to foreclosure. The hit on my credit stinks, but it would stink a lot worse to be $40000+ in the hole. Lawyers are expensive, but in a situation like this, you really can't afford not to go. It's way too complicated to figure out the best course of action without expert help. The laws are different in every state, and everyone's situation is unique so I really urge you to urge them to go to a lawyer. Seriously. They really need to go.

[flowerseverywhere]

wonderful helpful advice. Thanks so much.

I was the one that convinced them to see an attorney. They were just going to not pay and wait and see what happened. They told me they have an appointment but we'll see. I do think they might listen as years ago when they bought the house they told me their plan. It was to put them minimum down and get a long mortgage (tax writeoff) which I told them was the opposite of what I would do. They did that and got new furniture, fancy cars etc. My life, with many years mortgage free is so much less complicated than theirs and I think they are starting to see the light of simple living and no debt.

I like the real estate person who specializes in short sales- I would not have thought of that.

again, many thanks

[jennipurrr]

You may want to have them check out this thread at Fatwallet Finance. I have not read through it in its entirety but someone details his personal experience being foreclosed - http://www.fatwallet.com/forums/finance/1080374/

[razz]

Flowers, may I offer a suggestion that you simply provide the info and then step way back from the whole situation. In any marriage there are so many variables that are not visible to an outsider. There are also so many issues that brought them into this situation that need to be resolved as well. Lots of talking with a mediator and making informed choices on their part that they may choose not to do and they will live with the consequences of their choices.

Sometimes, being a kind friend is also being a vulnerable friend so stepping back will reduce your vulnerability.

[flowerseverywhere]

razz, great advice. I stay out of things for the most part but they did ask my opinion. I gave it and haven't asked since, but I did tell them about Steve's suggestion to approach a real estate agent about a short sale idea.

also, the article Jenipurr linkes was very good, and at the very end someone posted an article about how some of these foreclosures are coming back to haunt people because the bank never took posession of the property, so now back taxes and fees are piling on. A very bad situation all around for every party.

http://money.cnn.com/2013/02/20/real_estate/zombie-foreclosures/index.html