07/30/2016
A foreclosure is generally about as pleasant as a root canal. For both parties. Don’t think your lender wants to foreclose. Lenders almost never want to go through the expense and hassle of going through the entire foreclosure process. But the lender also has a responsibility to its investors to protect their position as best it can, and so foreclosures happen.
what happens after foreclosureSo what’s going to happen once you receive notice of a foreclosure? It varies. Here are the possible outcomes:
1. You pay the mortgage and keep the house.
This is the happiest of all possible outcomes. The lender is satisfied, and you get to keep your home. Once you pay the note, the foreclosure becomes null and void. Occasionally, people can raise enough cash to pay off the note. But in most cases, people pay off the note by refinancing, one way or another.
Hopefully, if you refinance, you will be able to do it via another bank loan or mortgage company loan at a reasonable interest rate. In some cases, people have paid off their notes with personal loans or high-interest credit card debt, by hocking their cars, or any combination of the above.
Be cautious about replacing a mortgage debt you can’t pay with even higher interest debt you can’t pay: You could wind up in bankruptcy, despite your best efforts.
2. You pay the mortgage by selling your house.
If you can’t refinance, and you can’t pay off the loan with other assets, the next best thing may be to sell the house yourself. If you can satisfy the loan with the proceeds from selling the home, all is well. For the moment, anyway. If you don’t buy another house soon, and you actually profited from the transaction, you could be hit with a capital gains tax liability. True, if you lived in the house for three of the previous five years (special rules may apply for active duty military), you get a $250,000 capital gains tax exclusion on the sale of a personal residence. Twice that for married couples.
If it’s an investment property, on the other hand, you’re under the gun, and the clock is ticking.
You have until the moment the lender auctions off the home to sell it yourself. However, if you owe more on the mortgage than the home is worth, you will either need to make up the difference in cash, or get the bank to agree to take a lower amount in a short sale
3. The bank auctions the home.
Different states have different specific procedures. But generally, whoever made the highest bid and comes up with the cash will get the deed to the property – and all the rights and privileges attaching thereto. You may be able to make a deal with the buyer to stay on as a renter or work out a rent-to-own arrangement.
If you were on the cusp of being able to arrange financing to pay off the loan and just didn’t quite manage it in time, you may even be able to purchase the home from the new owner outright – though the new owner will likely expect a tidy profit for his or her trouble!
Tip: Some states provide for a redemption period. This is a period of time, ranging from a few days to as long as a month, in which you can still get your home back, if you can come up with the necessary cash. Speak with your own foreclosure law attorney to find the applicable laws in your state.
4. The bank takes over the property.
Sometimes a lender will go ahead and take over the property outright, choosing to manage the property itself. This happens if there are no reasonable bidders for the property, or if the lender is confident that they can eventually get a better recovery by biding their time and waiting.
Meanwhile, unless the home was a residential property, or the loan was a non-recourse loan (meaning the loan is secured only by the underlying property itself, and the lender has no right to file suit to recover any unsatisfied balance), the borrower remains on the hook for the difference between the loan balance and the fair market value of the property.
If the lender actually seizes the property, you can eventually expect the sheriff to come and evict you and your belongings and the locks to get changed. In some cases, though, you may be able to stay on as a renter, as described above. (This is one advantage to using a small, locally owned and operated bank as your lender: You can sometimes strike a better deal with a senior loan officer, or even a bank president, with the authority to approve your proposal, than you can with a low-ranking drone in your bank’s foreclosure department.
5. Bankruptcy.
By filing bankruptcy, you can legally bring all foreclosure proceedings to a halt. In some areas, this can take months or years. Meanwhile, you can save as much as you can, and perhaps free up enough cash flow during the process to pay off your mortgage, or at least get current on it. State laws vary a great deal. Chapter 7 bankruptcy – the full discharge of debt – typically requires you to sell off almost everything you have, frequently including your home, as part of the bankruptcy process. Generally, you won’t be able to qualify for Chapter 7 anyway, unless you meet the income requirements for your area. Typically, to stave off bankruptcy, at least temporarily, you will file under Chapter 13.
Bankruptcy doesn’t eliminate a foreclosure all by itself. But it can buy time to help you bring things to a more favorable conclusion for you, or at least give you some breathing space while the long bankruptcy process plays itself out.
Dream Empire Inc can help you find the solution that best suits your needs. Don't be so afraid that you abandon the property because then the bank wins and all your hard work done previously will be in vain. Call us today! 1(800) 380-5341
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