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Foreclosure: a
legal process in which mortgaged property is sold to pay the loan of
the defaulting borrower. Foreclosure laws are based on the
statutes of each state.
There are 3 types
of foreclosure;
-
Non-judicial
-
Judicial
-
Strict
Illinois is a
judicial foreclosure state. This is the most preferred of the
three types. It involves the sale of the mortgaged property done
under the supervision of a court, with the proceeds going first to
satisfy the mortgage, and then to satisfy other lien holders, and
finally to the mortgagor. Because it is a legal action, all the
proper parties must be notified of the foreclosure.
How foreclosure
starts;
(Information provided by
HUD.gov)
-
First month
missed payment - your lender will contact you by letter or
phone.
-
Second month
missed payment - your lender is likely to begin calling you to
discuss why you have not made your payments. It is
important that you take their phone calls. Talk to your
lender and explain your situation and what you are trying to do to
resolve it. At this time, you still may be able to make one
payment to prevent yourself from falling three months behind.
-
Third month
missed payment - after the third payment is missed, you will
receive a letter from your lender stating the amount you are
delinquent, and that you have 30 days to bring your mortgage
current. This is called a "Demand Letter" or "Notice to
Accelerate". If you do not pay the specified amount or make
some type of arrangements by the given date, the lender may begin
foreclosure proceedings. They are unlikely to accept less than
the total due without arrangements being made if you receive this
letter. You still have time to work something out with
your lender.
-
Fourth month
missed payment - now you are nearing the end of the time allowed
in your Demand or Notice to Accelerate Letter. When the 30
days end, if you have not paid the full amount or worked out
arrangements you will be referred to your lender's attorneys.
You will incur all attorney fees as part of your delinquency.
Timeline varies by
State.
-
Sheriff's or
Public Trustee's Sale - the attorney will schedule a Sale.
This is the actual day of foreclosure. You may be
notified of the date by mail, a notice is taped to your door, and
the sale may be advertised in a local paper. The time between
the Demand or Notice to Accelerate Letter and the actual Sale varies
by State. In some states it can be as quick as 2-3 months.
This is not the move-out date, but the end is near. You have
until the date of sale to make arrangements with your lender, or pay
the total amount owed, including attorney fees.
-
Redemption
Period - after the sale date, you may enter a redemption
period. You will be notified of your time frame on the
same notice that your state uses for your Sheriff's or Public
Trustee's Sale.
You have several
options to consider to avoid foreclosure. Below is a list of
them along with a brief description of each option.
Forbearance
A temporary agreement that delays payments for a short period of
time. Mortgage lenders only allow forbearance if you can prove
you'll eventually acquire funds. Some common examples would be a
tax refund or a bonus where you can show future earnings that can
bring your mortgage up-to-date.
Reinstatement
If you're behind on your mortgage payments, a reinstatement can
take place when you make a lump sum payment by a specified date,
bringing your account back to current status. Lenders often
combine reinstatement with forbearance.
Repayment Plan
If you're behind on your payments, the mortgage company may give you a
fixed amount of time to catch up, by combining a portion of your past
due amounts with your regular payments, allowing you to get current.
Loan Modification
The terms of your loan can be adjusted. Changing the amortization
table or lowering your interest rate can make a big difference,
reducing your monthly payment amount to something you can afford.
Federal Foreclosure Help
In response to the recent mortgage crisis, the president has announced
a refinancing program called FHASecure. This new product offered
through the Federal Housing Administration (FHA) is estimated to help
some 240,000 homeowners prevent foreclosure. This is rather notable,
as the FHA's previous policy would not allow for refinancing of
borrowers in default. It does, however, come with restrictions; you
must meet the following criteria to qualify:
1) You must have a history of on-time mortgage payments and a decent
credit history to qualify.
2) Your interest rates must have or will reset between June 2005 and
December 2009.
3) You must have 3 percent cash or equity in your home.
4) You must have a sustained history of employment.
5) You must have sufficient income to make your mortgage payments.
The primary purpose of FHASecure is to provide help to the
well-meaning borrowers who may have been lured into costly loans
featuring teaser rates, and may be facing mortgage foreclosure. You
can find more information on the FHASecure plan at
http://www.fha.gov.
Severe Problems?
A few options for individuals dealing with severe financial
circumstances or can no longer afford their mortgage payments and want
to stop home foreclosure:
Short Sale
A deal between the homeowner and lender to sell the property for less
than it's worth, with the mortgage lender taking the loss.
Deed-in-lieu of
foreclosure
This last resort allows you to "give back" your property to the
lender. This will leave a mark on your credit record, but it will stop
foreclosure, which is much more severe.
Credit Counseling
A non-profit credit counseling agency may be able to help you prevent
a real estate foreclosure. Be especially leery of fee-based groups
approaching you with bank foreclosure solutions. They'll often
recommend (at a cost) what we've covered above, most of which you can
do on your own or with the assistance of a HUD-approved counseling
agency. You may find a HUD-approved housing counselor
online or by calling (800) 569-4287.
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