National real estate indexes report that residential foreclosures have declined in recent months, But financially troubled homeowners still need to remain vigilant. Here are five items that continue to create confusion among homeowners facing foreclosure.
1. The right to a loan modification. Many states require residential lenders initiating a residential foreclosure to provide homeowners the opportunity to meet with their lender’s representatives. This meeting is to review the borrower’s relevant financial information and circumstances surrounding a financial hardship. When appropriate borrowers are given the opportunity to modify the loan, some states, like Michigan, require only those 5 mortgage companies that were party to the 2012 National Mortgage Settlement (Bank of America, Wells Fargo, Chase, Citi, Ally / GMAC) to provide homeowners with an opportunity to modify the loan should the borrower qualify. Laws vary by state, but unfortunately for Michigan homeowners, those mortgage lenders not part of the national settlement have it within their discretion to provide a financially challenged homeowner a loan modification.
2. Understand the redemption period. In states where there is a specified redemption period, homeowners do not lose their property to the bank upon a foreclosure sale. Homeowners still have time (redemption periods vary by state) afterwards or in some states even before the foreclosure sale where the homeowner can get their home back or “redeem the property.” Failure to redeem a property means that the homeowner permanently loses their home to the bank.
3. Don’t abandon the home. Lenders can petition a court to shorten the redemption period if after a lender inspection of a foreclosed property it appears abandoned, or damage to the property is imminent. Therefore, it is important that if a homeowner wants to save their home, they need to remain in their home during this time, otherwise they could risk their home being declared abandoned. Even after a redemption period expires, a lender may be willing to provide the homeowner “cash for keys” to leave the property in decent condition, and to offset moving expenses.
4. Once a home goes to foreclosure sale, a homeowner cannot reinstate their mortgage. Reinstatement has to occur before the sale and this means that a borrower must bring their loan payments current, along with any advances (Ie., lender paid property taxes). A lender can make repayment arrangements for reinstating the loan, although it is not required to do so. Once a home goes to foreclosure sale, the entire balance of the foreclosure sale amount is due plus daily interest on the outstanding balance. Note, a sale amount can be less than the actual balance due on on the loan obligation since the lender has the discretion to set the sale amount for less than what is owed. Therefore, it is important for the homeowner to find out the amount of the sale price as it could be less than their obligation.
5. Beware of unscrupulous actors. Every state has different licensing requirements, but a homeowner should work with a state licensed attorney or real estate agent. Understand that each adviser has unique skill sets. Attorneys who specialize in real estate law can negotiate with the mortgage company. They can interpret legal contracts and provide advice on available legal remedies against a bank or finance company. Real estate agents are sales people who can help sell a home hopefully before it’s lost to the bank. But note there is no such regulatory license anywhere known as a “foreclosure specialist” or”short sale specialist”. These are mere industry designations. A strong word of caution: always check with your state to see if someone is licensed in their respective field and that they are in good standing. Remember to never sign any documents without legal review. Finally, don’t ever feel rushed or compelled to sign anything without the advice of good counsel.