Foreclosure Myths

Myth: The bank wants your house
Truth: The bank almost never wants your house, they want the money they lent you paid back with interest. In fact, banks usually hate going through the foreclosure process and will bend over backwards to work with homeowners in avoiding a foreclosure. Often the bank's flexibility still doesn't go far enough in stopping the home foreclosure. Never confuse that with the bank "wanting" your house. Treating the bank with contempt or completely avoiding them because you think they "want" your house may only serve to hasten the result that neither of you want, that they "get" your house.

Myth: The bank will not take my payments, I can do nothing else
Truth: At some point many banks say if you do not pay all of your arrears in full they will not accept a partial payment. Maybe a month later you get that figure together only to find the bank sends it back because another month has gone by and now the "all or nothing" requirement has grown. Do not fear! If you and the bank can not get together on a solution for stopping foreclosure a mortgage negotiation professional can set up a plan for you to pay just a portion of the arrears now if along with the partial mortgage arrears payments you set a plan to pay future current payments and catch up on the remaining arrears over time, sometimes months, sometimes the life of the balance of the loan or extending the loan. The foreclosure process stops and as long as you stick to the plan you keep the home. Don't miss a payment under the new plan or the foreclosure process can pick up where it left off and banks rarely give second chances with this type of plan for avoiding foreclosure. If this fails you may still have the option of a Chapter 13 bankruptcy to save the house from foreclosure. Don't forget when the bank stops accepting your mortgage payments do not spend all your money elsewhere, you will need it to save the house. Read more on this at "Who to pay when you can't pay everyone".

Myth: I received a foreclosure notice; I have to move out now
Truth: Most states have a very long foreclosure process, even after failure avoiding foreclosure you do not have to move. Following a foreclosure you must go through an eviction hearing. Eventually you will be physically removed. I'm not suggesting you hold out until the end, but making sure you know you get to stay and fight if you want. Time can be on your side if you take action early and don't waste the opportunities for stopping the house foreclosure.

Myth: I'm in foreclosure, no bank will refinance me out of this foreclosure
Truth: If you have enough equity in your home, typically 60%-70%, specialty lenders will refinance the house to pay off the old bank and stop the foreclosure.

Myth: If I go through a foreclosure I can never buy a house again
Truth: From a banking point of view foreclosures can be viewed as one of the worst things ever on a credit report. Even so, some banks will make you a loan very soon after a foreclosure. Be prepared for very large down payments and high interest rates. Most often the terms of these loans prevent people from buying another house not that funding does not exist. In time provided you work hard to rebuild your credit you can go to a bank almost as if the foreclosure never happened, although expect that may take 4-7 years. Click here for an article about bad credit mortgages or applications for loans after foreclosure.

Myth: On the foreclosure auction day everyone in the world is going to invade my house
Truth: While some foreclosure sales may be held "at" the property no one will come inside unless you invite them.

Myth: A chapter 7 bankruptcy will stop my foreclosure and save the house
Truth: A chapter 7 bankruptcy will stop the home foreclosure on a temporary basis only. Eventually you need to do something else to keep the house in the long run if you are facing foreclosure.

Myth: Homeowners can come up with all sorts of creative ideas for stopping home foreclosure and the bank will go along with the smart plans
Truth: Bank's organizations in most cases involve complex bureaucracies and specific procedures. Most times the smartest plans remain destined for rejection. Stick to a plan within formats and parameters the bank works with everyday for avoiding foreclosure, get a professional to help you if needed.

Myth: Even if I get together all of the money I owe the bank once I'm deep into the foreclosure process it's too late
Truth: In most states if you have all of the money you owe the bank for back payments and legal fees, late fees etc, they have to take it and stop the foreclosure. It is not their choice it is the law, but where it applies you need to catch up "in full".

Myth: I'm getting foreclosed on and I'm going to go to jail
Truth: You may lose your house, but you don't go to jail for not paying the mortgage.

Myth: I have to do everything I can to save the house and continue to live in it
Truth: Sometimes people need to move on or in some cases they just hate the house and have have no desire to save it. The whole foreclosure procedure can be avoided with a "deed in lieu of foreclosure" negotiation where you and the bank agree to the terms for giving the house back to them in a less adversarial manner. In exchange they may forgive some of the money you owe and you'll have less heart ache. They agree to stopping the foreclsoure and you both walk away.

Myth: When the bank takes the house our dealings are done, they got the house back
Truth: In many states if the house sells for less than you owe them even after the foreclosure you will still owe them the amount of the "deficiency", meaning the difference between what they got and what you owed. They can still get interest on that too. If you think you will face a deficiency you should think harder about a deed in lieu of foreclosure where they will forgive it or a chapter 7 bankruptcy where it can be wiped out. See a chapter 7 bankruptcy attorney in your state if you have questions. Even in a deed in lieu of foreclosure situation you may still owe a deficiency unless you make sure as a part of the deed in lieu of foreclsoure negotiation that you do not.

Myth: I have not paid my mortgage in months and no one has contacted me. I think I can stay here forever and not pay anything
Truth: Sometimes, especially when banks or loans change hands, files get misplaced or there is a transition period where nothing happens. Eventually you will hear from the bank. You can not be successful stopping foreclsoure by avoiding the mortgage problems.

Myth: The bank can't expect ME to pay THEIR legal fees
Truth: Oh, yes they do, and you will if you want to keep the house. Look in your mortgage documents, it's very clear. Don't expect it to be cheap either $2000-$5000 can be common.

Myth: When a judge hears my sad tale they will not kick me out
Truth: You may get more time, but you will only be stopping the action for a while, eventually you will go.

Myth: Once the foreclosure sale happens you can never get the house back
Truth: Sometimes this one is true, but in some states people have "redemption" rights where they can keep the house if they can pay the bank off in full, principal and arrears, within a limited time period. In other cases you can still buy it back after the foreclosure, but that remains a rare case.

Myth: The foreclosure date is too close, there is nothing I can do
Truth: Sometimes minutes before the foreclosure sale a Chapter 13 bankruptcy will stop the auction. Don't wait for things too get this close, but I have seen it done. You will be better served to have things prepared with a lawyer at least a week or two prior to the foreclosure date.

Myth: If I file a chapter 13 bankruptcy I get to keep the house automatically no matter what
Truth: If you file a chapter 13 bankruptcy AND you have a chapter 13 approved by the court AND you make ALL of the payments under the plan you can keep the house. Read more about Chapter 13 bankruptcy or finding a chapter 13 lawyer near you by clicking here.
Myth: When they foreclose on my house they take all my stuffTruth: You keep your personal property, but permanent attachments to the house should stay like light fixtures or a dish washer. Sometimes it gets tricky, but unless there is something of great value the bank expected was there and it is gone after the foreclosure it is rarely an issue. Don't turn it into an issue by taking everything including wall to wall carpets and radiators and toilets, which would insure trouble.

Myth: The bank messed up one of my payments and I have proof! They can't kick me out, in fact, I want to sue them and I'm going to collect big
Truth: People often focus on the wrong things, waste time and lose the main objective while focusing on the trivial details. If you owe the bank $10,000 and they say you owe them $10,500 even if you are right a $500 error will not mean anything in terms of a judge stopping the foreclosure or award significant money to you. Concentrate on stopping foreclosure by dealing with the $10,000 you admit you owe and deal with the $500 error as a secondary subject.

Myth: No one can help me in stopping my home foreclosure
Truth: Many methods and many professionals can help avoiding foreclsoure. Click here for an interactive form for help decide which method of stopping foreclosure fits your own personal home foreclosure situation.

5 ways to Acquire Foreclosures

By Chris Taylor
In general, there are five basic ways to acquire foreclosures at discounted prices. All but one of them permit the buyer to pay for qualified assistance from other sources (such as a title and / or escrow company. Unfortunately, the most popular technique (buying properties at the trustee's sales) allows no such luxury. The purchasing process at the trustee's sale requires each buyer to make his own thorough investigation of both title and debt on the chosen property within a limited time frame.

Delinquent Seller
The first and simplest way to buy properties under the fair market value arises when the delinquent (not defaulted) owner is uncovered. The delinquent buyer will not have made recent payments of principal, interest, taxes or insurance and / or may have reduced the value of the property through benign negligence or lack of funds. When the delinquent owner realizes that he will be unable to meet the commitments on promissory notes and trust deeds for an extended period, he may choose to sell his property even at a discounted price rather than proceed through the foreclosure process. The wise buyer will point out to the delinquent (and later defaulted) owner how he will be harmed by proceeding through the brief foreclosure process to the trustee's sale. At that point, the owner will lose his property, lose his equity, reduce his credit standing as a result of the recorded foreclosure and may have taxable income due the IRS for the amount of the debt reduction (elimination of the trust deed debt) resulting from the trustee's sale. Selling to an interested buyer at a discounted price may well be the most convenient solution for the troubled, delinquent owner.

Defaulted Seller
The property owner becomes a defaulted owner when the trustee for the beneficiary records a Notice of Default. During the following three month plus three week periods, a Notice of Trustee's Sale also will be recorded and published in a local adjudicated newspaper once a week for three weeks just prior to the trustee's sale. Live-in buyers of the property of the defaulted owner may negotiate any reasonable purchase price and terms for the property with the defaulted owner. Investors who seek to purchase the primary residence of a defaulted owner of one to four units and who are not related to that owner must work with the equity seller under the restrictions of two California Civil Codes which can make such purchases more difficult. These restrictions require the use of a special contract with a Notice of Cancellation, permit the equity seller to pursue the equity purchaser for unconscionable advantage for two years after the sale, and eliminate the use of outside assistance in the pursuit of a foreclosure property. Investors who unwittingly or intentionally become foreclosure consultants to equity sellers may also place themselves in jeopardy under certain conditions.

Trustee's Sale
Most purchasers of foreclosures prefer to acquire their properties at the trustee's sale. At this time, it is possible to make property purchases without being in contact with the defaulted owner or foreclosing lender. Money talks. Anyone with money may make a purchase regardless of credit, race, religion, etc. The verbal auction permits the highest bidder to acquire a property by paying off only the remaining balance on the foreclosing loan regardless of the fair market value of the property. Debt recorded after the date of recording of the foreclosing loan is eliminated. Problems of unanticipated repair,eviction, payoff of superior loan(s), possible IRS redemption and inadequate research can present formidable obstacles to the inexperienced buyer.

REO Lender
When a trustee's sale is held with no bidder present, the property is said to be "sold" to the foreclosing lender. The REO lender usually will sell the property rather than retain the property as part of the lender's nonperforming assets. Finding that lender who will well the property newly acquired at the trustee's sale at a substantial discount is not easy although it is possible through a careful selection of lender sources of such properties. Individuals (not lending institutions) normally present better opportunities to purchase at a discount.

Friendly Junior Note
The fifth way to buy foreclosures is just a bit more complex but is an attractive way to acquire properties with less competition than purchasing at the trustee's sale. If the holder of the junior loan to the foreclosing loan agrees to sell his promissory note and trust deed at a substantial discount, the purchaser of the junior loan may cure the underlying senior loans and then foreclose himself on the newly acquired junior loan. The sale of the property through the junior loan can bring immediate return on the face value of the junior loan of the acquisition of the property with attractive equity.