This is the third part of the series. The first two talked about ways to avoid to foreclosure, this last part will talk about what if you are staring down a foreclosure and there is no avoiding it.
Perhaps you have tried to modify, tried to sell, or perhaps, you didn't do anything until it was too late. What now.
Well, first off, life will go on after the foreclosure. The sun will still rise and the sun will still set.
So, lets talk about the big 'F' word. The ramifications, and also your rights.
Understand that I am in Georgia. So, laws in your state may vary slightly.
So what happens on the day of a foreclosure?
Basically, an attorney will stand on the courthouse steps and auction off your home. Most of the people at the auction are investors looking for a deal. In many cases, the bank will have a minimum bid higher than the investors want to pay. At that point, the bank becomes the owner of the property. If the starting bid is low enough, the owner will be whoever bids the highest.
So, what should you do before foreclosure?
#1) Don't move. If the bank receives the property back, they have cash for keys programs and you can get a thousand or so dollars to move out within a specific time frame. Usually two weeks from the time that they approach you. Also note that many times the offer made is below what they are willing to pay. So, you have the opportunity to negotiate.
If an investor buys the property, they too may elect to pay you cash to leave the property in good shape. Otherwise, they will have to go through the eviction process which could take a month.
Remember, no one can just show up and force you to leave without proper legal process, including the eviction process.
#2) Don't tear up the house. I realize that you may be very angry. The reality is that if you leave the house in the shape it is in, you can qualify for a cash for keys program, or the investor may pay moving expenses. But, if the house is torn up, they have no incentive to pay you to keep it nice.
And, any money you would get off Craigslist for second hand building materials should be eclipsed by what you received from the cash for keys program.
#3) Breathe. Yeah, it sucks. Yeah, it feels like the world will end. It won't. In six months, you will hardly think about it.
So, what about after foreclosure?
#1) There will likely be a deficiency. A deficiency is the difference between what the bank gets for the property and what the loan balance was. The bank may or may not write this off. If they don't, you can often call and negotiate a lesser amount to 'settle' the account. If they do, they will mail you a 1099. If the property is a personal residence, this should not be taxable. Make sure to verify the person that is doing your taxes is aware of whether it is a primary residence or not. In recent years, lenders holding first mortgages are not typically going after borrowers for deficiencies.
#2) If there was a second mortgage, it is not wiped away. There is obviously no collateral, but there is still a legal requirement to pay that debt. The first mortgage company will get something either from the courthouse steps or from selling the property. The second mortgage company, most of the time, gets nothing. So, they are much more likely to continue to pursue you for payment. Again, in these cases, you can settle the account for less. In many cases, you can get very favorable terms.
Many think that once the foreclosure is over, they don't have to worry about paying any of this money back. That is not necessarily the case.
#3) It is going to be at least three years before you can buy another home. At that time, you will have to fully explain why you were in this situation and underwriters are going to look much harder at this than a short sale.
Perhaps you have tried to modify, tried to sell, or perhaps, you didn't do anything until it was too late. What now.
Well, first off, life will go on after the foreclosure. The sun will still rise and the sun will still set.
So, lets talk about the big 'F' word. The ramifications, and also your rights.
Understand that I am in Georgia. So, laws in your state may vary slightly.
So what happens on the day of a foreclosure?
Basically, an attorney will stand on the courthouse steps and auction off your home. Most of the people at the auction are investors looking for a deal. In many cases, the bank will have a minimum bid higher than the investors want to pay. At that point, the bank becomes the owner of the property. If the starting bid is low enough, the owner will be whoever bids the highest.
So, what should you do before foreclosure?
#1) Don't move. If the bank receives the property back, they have cash for keys programs and you can get a thousand or so dollars to move out within a specific time frame. Usually two weeks from the time that they approach you. Also note that many times the offer made is below what they are willing to pay. So, you have the opportunity to negotiate.
If an investor buys the property, they too may elect to pay you cash to leave the property in good shape. Otherwise, they will have to go through the eviction process which could take a month.
Remember, no one can just show up and force you to leave without proper legal process, including the eviction process.
#2) Don't tear up the house. I realize that you may be very angry. The reality is that if you leave the house in the shape it is in, you can qualify for a cash for keys program, or the investor may pay moving expenses. But, if the house is torn up, they have no incentive to pay you to keep it nice.
And, any money you would get off Craigslist for second hand building materials should be eclipsed by what you received from the cash for keys program.
#3) Breathe. Yeah, it sucks. Yeah, it feels like the world will end. It won't. In six months, you will hardly think about it.
So, what about after foreclosure?
#1) There will likely be a deficiency. A deficiency is the difference between what the bank gets for the property and what the loan balance was. The bank may or may not write this off. If they don't, you can often call and negotiate a lesser amount to 'settle' the account. If they do, they will mail you a 1099. If the property is a personal residence, this should not be taxable. Make sure to verify the person that is doing your taxes is aware of whether it is a primary residence or not. In recent years, lenders holding first mortgages are not typically going after borrowers for deficiencies.
#2) If there was a second mortgage, it is not wiped away. There is obviously no collateral, but there is still a legal requirement to pay that debt. The first mortgage company will get something either from the courthouse steps or from selling the property. The second mortgage company, most of the time, gets nothing. So, they are much more likely to continue to pursue you for payment. Again, in these cases, you can settle the account for less. In many cases, you can get very favorable terms.
Many think that once the foreclosure is over, they don't have to worry about paying any of this money back. That is not necessarily the case.
#3) It is going to be at least three years before you can buy another home. At that time, you will have to fully explain why you were in this situation and underwriters are going to look much harder at this than a short sale.
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