How The Real Estate Foreclosure Process Really Works

Author: investguru

2008-09-20 Word Count: 1011 Category: Real Estate

Regrettably, this is the day and age where a prevalence of foreclosures keeps creeping closer and closer to home. Many hopeful sellers are wondering what is involved in a foreclosure and what steps can be taken to thwart such an occurrence.

Following is a timeline of events when a property becomes "delinquent" on payments.

Breach Letter
The Breach Letter is a formal letter sent to you in an attempt by the lender to avoid foreclosure action. The lender hopes this letter will encourage you to contact them to work out an agreement called a Foreclosure Workout. With the age of foreclosures, we have seen the case where a homeowner is delinquent by 3 months, or more, and still hasn't received this letter.

Foreclosure Workout (Reconveyance, Forbearance, loan modification)
Foreclosure workout assistance is typically done during the initial phase of the pre-foreclosure stages. Lenders are more than willing to attempt a plausible scenario to stop the delinquency and bring the loan current. There have been occasions where the lender is willing to lower interest rates, change adjustable rate mortgages to fixed, forgive delinquent amount owed and even wipe out junior liens they may hold if the value of the property is less than what is owed. If a work out plan is not initiated within approximately 45 days of the Breach Letter your case is normally referred to an attorney to file foreclosure action, though many times, a loan modification or reconveyance can be accepted well into the foreclosure process.

Attorney Referral
The lender will refer your case (delinquent loan) to an attorney or trustee, usually with 90 to 120 days, who then files a petition in court to foreclose your mortgage and get the lender the right to sell the home to pay off the outstanding balance of your loan. The average time between attorney referral and the foreclosure sale varies by state. In California, an NOD (Notice of Default) can be filed 90 days after a mortgage payment was due. With current regulations in CA, the lender now needs to personally contact the homeowner to advise them of their rights, what steps can be worked out, etc, before a NOD can be filed.

Junior Lien holders
These are also know as secondary or other lien holders. It refers to lenders, people or the government who may have a recorded lien against the property. Your primary lender may contact junior lien holders to determine the status of your loan with them. Once contacted these other lien holders may initiate separate foreclosure action to protect their interest pursuant to the terms and conditions of the mortgage or deed of trust. In today's market, we are seeing less and less junior lien holders filing for an NOD because the value of the property is less than what any junior lien would receive in a trustee sale. Any junior lien holder is still responsible for senior liens.

Note: Separate action by junior lien holders does not usually prevent you from completing a Foreclosure Workout Agreement with your lender. Because it's to their advantage, most lien holders readily agree to participate in the workout solution.

Special Relief Provisions
Fannie Mae provides Special Relief Provisions that attempt to span periods of financial hardship that cannot be resolved by delinquency counseling or with a simple workout plan. Most lenders follow Fannie Mae's lead and do not object to any reasonable workout plan provided it does not compromise the lien position or come into conflict with any other policy or commitment.
Relief Provisions are normally offered when a delinquency is the result of a temporary condition, such as illness, unexpected expenses, or military service, and there is a reasonable chance the borrower can bring the mortgage current. During the term of a Relief Provision the property will be subject to scheduled inspections.

Temporary Indulgence
A grace period, usually 30 to 60 days, may be granted to allow you to bring the mortgage current. If requested, you will have to demonstrate evidence that you can bring the loan current such as proof that you have one of the following conditions:

1. Have a contract for the sale of the property and a closing date.
2. Have an insurance settlement or one pending.
3. Have or are pending an approved funding from another source.
4. Have an approved "Relief Provision" completion date.

Liquidating Plan
This option allows additional proceeds to be added to the regular monthly payment after the hardship has passed and the borrower can resume regularly scheduled payments. Fannie Mae, HUD and VA policy allows most any creative solution agreed to under a Liquidating Plan that will remove the delinquency in the shortest amount of time.

Special Forbearance
The suspension of payments for a specified period of time, usually no more than 18 months, from the date of the first payment. At the end of the suspended period the borrower may be expected to resume payment under a Liquidating Plan. This plan is used to assist borrowers experiencing a temporary loss, or reduction, in income that is expected to be restored at a later date. Most lenders provide Special Forbearance in any situation for which there is documentation and relief is warranted.

Long Term Special Forbearance
In certain situations Special Forbearance can be extended up to 24 months.

Military Indulgence
If you had a mortgage as a civilian and then later entered the military, you may be entitled to Military Indulgence granted under the terms of the Soldiers' and Sailors' Civil Relief Act. There are two components of this provision:

1. Interest Rate Reduction
This requires the lender to reduce the interest rate to 6. Divide your total debt by the remaining term of the loan (more than six months) by your total income. This will give you a close estimate however, if the ratio is greater than 50% your plan is not likely to be approved.

We hope this helps explain the entire process of foreclosure and gives you the understanding needed for the situation you are in. Best of success…

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Foreclosure can b a very complex process if you aren't familiar it... We've outlined the process and all the terminology in a easy to read article. For more educational articles go to www.800cashtoday.com and view the library section.