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From the Experts at Credit.com

Understanding Your Foreclosure Rights: A Consumer Law Review

Understanding Your Foreclosure Rights

What is Foreclosure?

Foreclosure is a legal process where a creditor (for example: a lender or mortgage holder) can repossess or sell property for the purpose of repaying the debt owed on that property. Mortgage holders can foreclose on property anytime after the borrower starts missing payments on the mortgage, unless otherwise set out in the mortgage, or in the laws of the state where the property is located. Although State laws vary, in general foreclosure involves the following steps:

  1. The mortgage holder gives the defaulting homeowner, a written notice of default.
  2. The homeowner is given a limited period of time where they have a chance to cure the default and pay all amounts due including interest, penalties, attorney charges and any other fees allowed by the law or the mortgage.
  3. The lender may pursue judicial foreclosure (involving filing a lawsuit in a court), or non-judicial foreclosure depending upon the laws of the state where the property is located.
  4. If the time allowed for the homeowner to cure the default has passed, the mortgage holder will probably give notice of a foreclosure sale.
  5. The property may be sold at public auction where the highest bidder can purchase the property, or the lender may purchase the property and sell it later in a private sale.
  6. An unlawful detainer suit will be filed to evict the property owner if he or she is still living on the property after the sale.

The length of time a foreclosure process takes can vary significantly. State laws and the mortgage holder’s motivation are major factors. In many cases, the foreclosure process will start three to six months after you missed your first payment.

Will a Foreclosure Action Wipe Out All of Your Debt?

Foreclosure actions wipe out some of the property owner’s debt, like the original mortgage (taken out at the time of the home purchase), HELOCs, and second mortgages. However, property owners are still obligated to pay HELOCs and second mortgage’s off in full if they are not paid out of the foreclosure proceeds.

In markets where there has been a significant drop in real estate prices, some properties will be sold for less that the balance owed on the original loan. If there is no insurance protecting the mortgage holder (e.g., PMI) for the difference between what is owed on the property and what it was sold for, a court could enter a deficiency judgment against the property owner. Deficiency judgments obligate the property owner to repay the difference, and give mortgage holders the right to collect the remainder of the debt owed from any other assets the property owner may have.

A Lender’s Legal Obligations in a Foreclosure:

In most states mortgage holders, or lenders have two primary obligations:

  1. Notice: In most states, the most important part of the foreclosure process is to provide notice to the property holder. In these states lenders are required to (1) provide a homeowner with sufficient notice to allow the property owner to understand he or she is in default, and (2) notice of the property owner’s right to cure the default before the lender can initiate a foreclosure proceeding.
  2. Do NOT bury your head in the sand, and ignore any written communication from your mortgage lender. Respond to any notice you receive as soon as you receive it. Find out the exact details of what the lender believes you did, or did not do, and ask what you can do to cure the default.
  3. Written claims (proof of money owed under the mortgage): Lenders also are usually required to file statements which itemize the amount the property owner owes under the mortgage. This amount owed includes the principal, interest, late charges, attorneys’ fees and any other charges the lender is permitted to charge under the terms of the mortgage, or the laws of the state where the property is located. In many states lenders are not required to send a claim to the property holder.
  4. Soldiers’ and Sailors’ relief: Lenders are also required to certify in writing that the property owner is not a member of the armed services before initiating a foreclosure action. The Soldiers’ and Sailors’ Civil Relief Act is intended in part to protect deployed active duty service people. If you are a member of the armed services you should consult an attorney about your rights as it concerns foreclosure proceedings.

What if the Lender is Wrong?

If you think your lender made a mistake because you did not default on your loan, or the amount the lender is claiming is incorrect, contact the lender and explain in writing why you believe the lender is mistaken. Be sure to explain clearly why you are not in default and provide copies of any documents that prove your position. Even if your lender does not agree, you have the right to go to court and prove that you did not default on your loan. If you go to court the documentation you send to the lender will be very important. You may wish to consult with legal counsel to handle any court appearances and documentation.

Can I Stop a Foreclosure? What Legal Ways Exist to Stop or Prevent a Foreclosure?

There are basically two legal ways to challenge or defend against a foreclosure:

Technical defenses are defenses to the foreclosure proceeding itself. One example of a technical defense is if a property owner was not given adequate notice of the default and proceedings. However, technical defenses are not very helpful in preventing foreclosures because a mortgage holder can easily defeat the defense by correcting the procedural defect. In the example of lack of adequate notice, a mortgage holder can defeat the defense by issuing a new default notice and begin the proceedings over again.

Substantive defenses are the best legal way a property holder can stop a foreclosure. Substantive defenses go to the terms of the mortgage itself. Here are some examples of substantive defenses to the foreclosure process:

  1. If you are really not in default, and the debt and interest have been paid on time (according to the terms of the mortgage);
  2. The mortgage holder committed fraud in obtaining the mortgage;
  3. The property owner files for bankruptcy. A bankruptcy filed before the foreclosure sale will “stay” or temporarily stop a foreclosure; and
  4. A property owner can stop a foreclosure process if he or she pays off the loan and all of the lender’s foreclosure expenses and costs.

If you believe you may have a legal reason to stop the foreclosure you need to file an objection to the sale with the court. In most states you can file objections before the foreclosure sales takes place, after the sale has taken place, or before the court ratifies the sale, if the sale was improperly conducted.

Practical Suggestions to Stop a Foreclosure Sale

  1. Find out the exact details of what the lender believes you did, or did not do. Ask the lender what you can do to remedy the default. Some lenders will work with you, so it doesn’t hurt to ask.
  2. Pay the mortgage holder any loan payments you are behind on, together with any interest, fees, or late charges incurred by the mortgage holder. Although this is the most difficult thing to do, since you are already in default because you haven’t made timely payments, this is the best way to prevent foreclosure proceedings.
  3. If possible try to work out a compromise that will stop the foreclosure proceedings. This may allow you to stay in your home and protect your credit score. It never hurts to ask your mortgage holder if you can reach a compromise. Ask:
    • If the lender will agree to lower your payments and allow you to pay over a longer period of time; or
    • If the lender will lower your payments in exchange for raising your interest rates, adding a point; or
    • If you can refinance the loan at a lower interest rate in order to reduce your payments.
  4. Sell your home so you can keep more of the equity. Locate a real estate agent that is familiar with foreclosure investing.
  5. Volunteer to give the house back to the lender. (For more on this topic, see Deed in lieu of foreclosure in the Glossary).
  6. You may be able to postpone the proceedings one time, for one day, if you make a good argument in writing that you can obtain the cash.

Tax Issues

There are tax consequences of foreclosure. When a debt is forgiven in a foreclosure action, taxpayers are considered to have made money. That means that the taxpayer or property owner not only loses the property, but also may owe taxes on the difference between what was paid for the property (the value of the home) and what is owed on the mortgage (but forgiven in the foreclosure action).

These days with the large number of mortgage foreclosures and decline in housing prices, there are more and more situations where property owners will be responsible for taxable income resulting from a foreclosure.

Credit Issues

Foreclosure, voluntary or involuntary, on a property can be very damaging to your credit. Your mortgage records will be marked as in foreclosure and these records will remain on your credit files for 7 years. A mortgage foreclosure is nearly as damaging as a bankruptcy filing and will have a significant impact on your ability to borrow in the future.

You can minimize the impact of a foreclosure by continuing to use your other credit and loan accounts responsibly.

Credit.com Tips:

  1. Do NOT bury your head in the sand, and ignore any written communication from your mortgage lender. Respond to any notice you receive as soon as you receive it. Find out the exact details of what the lender believes you did do, did not do, and ask what you can do to remedy the default. Act quickly!
  2. Find a lawyer to represent you when negotiating with lenders – it will ensure the best possible outcome.
  3. If you can reinstate the loan and pay all of the loan payments and lender’s costs.
  4. Filing for bankruptcy should be your last resort. Most homeowners who declare bankruptcy end up losing their home to foreclosure anyway and you will end up with the bankruptcy and foreclosure on your credit report. If you need to file for bankruptcy, contact a bankruptcy attorney. Be aware that you still may lose your house, and you will have damaged credit for at least 7 years.
  5. There has been a recent surge in fraud related to foreclosure assistance for consumers. Avoid companies which:
    • Claim they are mortgage consultants;
    • Want you to pay an advance fee before they are able to perform any service for you;
    • Claim they can stop the foreclosure proceeding if you are in default and rescue your property;
    • Take over your house at a discount;
    • Tell you to pay the company instead of your lender;
    • Tell you to transfer your deed to the company; or
    • Anyone who claims they will give you a good deal

    Always check the validity of the company with your State’s Attorneys Generals. (to find your Attorney General: http:// www.naag.org).

  6. Never make a verbal agreement; always get it in writing.
  7. Don’t refinance your mortgage several times in a short period of time. Each time you do this your lender will charge you additional fees, refinance charges and points. All of the refinance expenses and fees will be used in calculating the annual percentage rate of your loan so you may pay a higher interest rate.

Understanding Your Foreclosure Rights – Glossary

Acceleration Clause
Most mortgages have acceleration clauses which allow the mortgage holder to declare that the entire debt is due and payable as soon as you default on a payment. For example, if you have a mortgage on your home for $75,000, and you fail to make the monthly payment, the lender can demand that you pay the full amount owed, or $75,000 immediately as soon as you miss one payment. If a mortgage does not have an acceleration clause, the lender can begin foreclose proceedings as legally permitted in the state where the property is situated.
Deficiency Judgments
You as a mortgagor are required by law to pay mortgage insurance (e.g. PMI) for the length of time the mortgagor’s first mortgage is more than 80% of the value of the property. In a real estate market like the one we are experiencing now, where housing prices drop, it is possible that the property could be sold for less than the balance on the your loan. PMI will not cover this deficit so a lender may ask the court to enter a deficiency judgment against you. A deficiency judgment gives the lender the right to collect the difference from your other assets unless the loan is considered a non-recourse loan.
Foreclosure by judicial sale
A foreclosure by judicial sale is the most common method of foreclosing on real property. A foreclosure by judicial sale is a process supervised by the court where property is sold. The proceeds of the sale go in order to: (1) the lender to satisfy the terms of your mortgage; (2) other lien holders; and if there is any left (3) to the mortgagor of the property.
Foreclosure by the power of sale
In a foreclosure by the power of sale the mortgage holder, or lender, sells property outside the supervision of a court. Most the states permit lenders to foreclose by selling property because it is very efficient. Like the foreclosure by judicial sale the proceeds of the sale go in order to: (1) satisfy the terms of the mortgage; (2) other lien holders; and if there is any left (3) to the mortgagor.
Deeds in lieu of foreclosures
Some states permit strict foreclosures, or deeds in lieu of foreclosures. In those states when a property owner defaults on the terms of the mortgage, the court orders the property owner to pay the mortgage within a certain period of time. If the property owner can’t satisfy the court order within that time frame, the lender, or mortgage holder is permitted to take title to the property. The deed transfers the property owner’s interest in the property to the lender to satisfy the debt owed. The process can be advantageous to both parties because:

  • Property owners are immediately released the debt, and they can avoid the notoriety of formal foreclosure proceedings.
  • It is also an efficient process for lenders who can avoid expensive court proceedings, lengthy foreclosure processes and repossessions.

This type of foreclosure is not attractive to lenders foreclosing on property if the fair market value of the property is greater than the amount the mortgagor owes on the property. This is because banks and lenders who bid on the property at auction usually will not bid more for the property than the amount actually owed on it.

Mortgage
A mortgage is the written agreement between a lender and the purchaser of property (“Mortgagor”) and defines the terms of the purchase of the property.
Points
Points are the commissions or fees you pay your broker, or lender. A point is equal to one percent of the amount of the loan. If your mortgage is $300,000 and you pay two points you will pay $6,000 in fees to the broker.

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  • http://www.Credit.com/ Gerri Detweiler

    No – not only will that not work it could create additional problems. I would suggest you read Underwater On Your Home? Your Six Options and then make sure they understand all their options and get the help they need to make the best decision they can in these difficult circumstances.

  • http://www.Credit.com/ Gerri Detweiler

    if your home was properly foreclosed upon, you no longer owned it and you would not benefit from the subsequent appreciation. You may want to talk with a consumer law attorney if you think there were irregularities in the foreclosure process. It wouldn’t be unheard of.

  • http://www.Credit.com/ Gerri Detweiler

    If you can’t pay your rent the landlord can begin the eviction process (it’s not called foreclosure in the case of a renter). Unless she lives in some kind of income-based public housing, I don’t know that the fact that she rented a place she couldn’t afford is any reason for the landlord not to start eviction. Landlords generally aren’t required to reduce rent payments because someone can’t afford them. You may want to try to contact local social service agencies to see if there are rental assistance programs that would help her afford her rent. (I hope I understood your question!)

  • http://www.Credit.com/ Gerri Detweiler

    I am not sure how it works if you are in foreclosure for the primary mortgage and there is also a second mortgage. Have you spoken with a bankruptcy attorney to find out whether you may be able to save your home? Even if you can’t, you should talk with them because Congress has not extended the Mortgage Debt Forgiveness Tax Relief Act (at least as of the moment), you could potentially wind up with a big tax bill if your home goes into foreclosure. Bankruptcy could spare you that problem.

  • http://www.Credit.com/ Gerri Detweiler

    Faith, you need to talk with an attorney familiar with this type of debt as soon as possible. That may mean finding a bankruptcy attorney with experience in foreclosure debt. It’s possible the company may try to sue you for the balance. However, it’s also possible that the debt is too old (statute of limitations has expired). Still another possible scenario is that you are sent a 1099-c reporting this as cancellation of indebtedness income. I assume this is a large amount of money, and therefore I recommend you get professional advice.

  • http://www.Credit.com/ Gerri Detweiler

    This can be a real problem for homeowners who lost their homes. You’ll need to talk with a real estate attorney to see what can be done to get your name off the property.

  • Jim

    We had foreclosure papers served on us by the lender holding our home mortgage note. We appeared at the 1st hearing and were informed the lender didn’t have all their documents to proceed. The hearing was dismissed. The court granted an Order for Mediation. We are preparing for this. Now, our lender (bank) sells our note to another lender (bank). The attorney of record for the 1st bank sent a Motion for substitution of parties changing the existing suit to the 2nd bank (neither banks are affiliated with each other). Now the 2nd bank is the Plaintiff suing for foreclosure in place of the 1st bank. We never got copies of any of the reassignment documents; Motion, Proposed Order…. so we had no way to counter. Is it legal for one bank to sell a note to another bank and have the 2nd bank now the suing party? Doesn’t the 1st party have to close their case and the 2nd party have to start their own procedure even if the law firm is the same for both banks?What document do I file to argue this if any?

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry Jim, as much as I would love to be able to help you I am not an attorney and can’t offer legal advice. I will have to suggest you consult an attorney for help.

  • http://www.Credit.com/ Gerri Detweiler

    I don’t know how you could claim the taxes and PMI they are paying, but suggest you ask a tax professional. You may want to post this question at joetaxpayer.com/

  • http://www.Credit.com/ Gerri Detweiler

    If you are in a Chapter 11 or 13 reorganization process then you may be able to continue operating the business while you restructure. Please consult with a bankruptcy attorney. This is not a DIY project.

  • miller m

    we have a rental property that has been a money pit for us. And to top things off, our insurance dropped us because it’s a vacant property after it all the copper pipes were stolen. We are done after 9 years. How do we give the property back to the bank and walk away from it?

  • mary

    In case of deed of trust can the lender keep the repossed property without reselling it?

    • http://www.Credit.com/ Gerri Detweiler

      I don’t see why not but most lenders (like banks) don’t want to hold on to property because of the carrying costs.

      • Haley Morrison

        Do you know if the deed of trust has to ask the court not to foreclose on the property?

  • Mary

    I am a novice investor who would like to participate in online foreclosure auctions. I have been reading as much as I can, but I cannot seem to find a definitive answer regarding the rights of a second lienholder (such as a second mortgagee or a Homeowners Association). Can someone explain what happens in a situation like the following.

    A judgement on the property I am interested in bidding on is awarded to Citimortgage for $50,000. Auction is to be held August 1st. Citimortage (Plaintiff) maximum bid is $50,000 . There is a second morgtgage held by BOA for $75,000, but BOA has not brought an action against the property owner. I assume that BOA could bid on the property to protect its interest, but if it does NOT bid on the property and I am the winning bidder, do I face any action from BOA or do I owe BOA any money for its lien on the house? For example, if my winning bid is $55,000, CItimortgage probably owes BOA $5,000. But do I as the winning bidder have any liability to BOA for the remaining $70,000 second mortgage?

    • ScottSheldonLoans

      Hey Mary,
      I believe you would know if there is any monetary damages owed when you submit a bid. There would need to be some form of disclosure provided by the trustee’s to you as the buyer.

  • mark

    my house was in foreclosure with an auction date set. I claimed bankruptcy and the bank got relief from the bankruptcy. How soon can they set an auction date at this point?

    • http://www.Credit.com/ Gerri Detweiler

      Mark – That’s a question for your bankruptcy attorney. It depends on how foreclosures proceed in your state (judicial vs. nonjudicial), and a lot of other factors. Hope it works out OK for you.

  • Lake County FL Borrower

    I sold my home via a short-sale in 2012 in which both the 1st and 2nd Mortgage Lenders agreed to the Short Sale and there was complete debt forgiveness. The 2nd Mortgage Lender has reported the transaction as a foreclosure and not a short-sale, even though I have resubmitted the Lender Authorization to Short-Sale, the Release or Satisfaction of Mortgage and the dismissal and discharge of the Lis Pendens. The 2nd Mortgage was transferred to SLS Loans, however, they continued to report into Flagstar. Flagstar indicates that since a foreclosure for the 2nd was initiated that it is reported as a foreclosure regardless of the fact the foreclosure was stopped and home sold. Obviously, this is gravely hurting my credit and since I am 2 years post my short-sale I thought things would be looking up vs. now being held to a 7 year ‘hold’ for a foreclosure that did not occur. Please advise if there is anything I can do to further clear up this issue? Thank you.

    • http://www.Credit.com/ Gerri Detweiler

      My understanding is that foreclosure is similar to a bankruptcy in that if it is initiated, it can be reported for up to seven years even if it wasn’t completed. (Bankruptcy cases that aren’t completed can be reported for up to ten years.) Because a foreclosure filing is typically a matter of public record, it can be difficult to get removed. I assume you were represented by an attorney kn your short sale? If so then I’d recommend you talk with your attorney. If you weren’t then you can visit naca.net to find an attorney in your area to discuss this with.

    • ScottSheldonLoans

      Agreed, with Geri get an attorney that specializes in credit remediation. You should have them sending the HUD and lender short sale approval lender to the lender reporting as foreclosure, because that is wrong and should report”settled for less than full balance” the words short sale won’t usually report.

  • SAGG

    How many times can a mortgage company keep reporting when you in foreclosure.Ours does it 3-4 times a month

    • http://www.Credit.com/ Gerri Detweiler

      Hmmm…what exactly are they reporting?

  • http://www.Credit.com/ Gerri Detweiler

    I guess that’s where I am confused. Most lenders report on a monthly basis. Are these separate tradelines or are they just updating the same account frequently? It’s a little hard for me to advise without understanding exactly what’s on there.

    Is it accurate? If it is, then there’s probably not a lot you can do about it. If it’s inaccurate then of course you have the right to dispute it.

  • Steve

    My home was foreclosed in 2010, yet at the time I was uncertain of what to do with the Heloc and kept making the monthly payments. I have had this Heloc since 2007 and the principal never reduces. In the 7 years Chase has received over $5K in interest payments. I have tried to speak with them and they only send me a Loan modification form. Which confuses me since I have not had that house for 4 years. Any suggestions? Do I continue to make payments, walk away, or what?

    • http://www.Credit.com/ Gerri Detweiler

      First, if the principal has never gone down then you are probably in an interest-only period. At some point, the loan begins to fully amortize and payments increase.

      Nevertheless, you need to talk with an attorney asap. If you simply walk away they may a. send you a 1099-C which could result in a big tax bill for you and/or b. try to sue you for the unpaid balance. Consult a consumer law or consumer bankruptcy attorney. Visit http://www.nacba.org for a referral.

  • http://www.Credit.com/ Gerri Detweiler

    It’s probably more an instance of where a law doesn’t prohibit it rather than one that allows it. But I’d suggest you contact the Consumer Financial Protection Bureau to file a complaint and see what happens.

  • rene

    hi, i am in california. our house foreclosed in 2010 and BofA resold it in 2011. i noticed that we were still getting negative credit reports every month for being 180+ late on the 2nd mortgage. at the time, i read–and now i’ve forgotten the term–that it’s illegal in california for banks to do this, provided it’s a 2nd mortgage, and not a HELOC. i cannot readily find this information now.

    2-3 years ago i called BofA multiple times to ask them to stop the negative reporting. it went into a long period of avoidance on their part. i should have written to them, but fear took over & i was afraid to document myself into a demand for full payment. and then i let it drop.

    now it’s 2014 and the negative reporting has never stopped. what do i do? is it illegal? if they stop the negative reporting will my credit be fixed retroactively, or only as of the date of resolution.

    here is an image i edited from my credit report. you see the 1st mortgage is green in june 2010. and all of the area i colored dark green in the 2nd mortgage represents the nasty reports.

    thank you for any guidance you can give. sincerely, rene

    • http://www.Credit.com/ Gerri Detweiler

      Rene – Thanks for providing that information. It is super helpful. When I have looked into this the answer I received is that the status is still 120 days past due. In other words, since you didn’t catch up it will continue to report like that for seven years. However, this is not a legal opinion and I’d encourage you to also check with the Consumer Financial Protection Bureau.

      • rene

        thank you very much gerri. from what you researched, it sounds like it’s legal. if it is, and if it’s continued to be reported for 7 years, then it will take another 7 years for the negative reporting to age off. that’s 1/4 of my life.

        i did not catch it up because the bank got the house. and then it resold it, and was bailed out by the government. well, i just can’t see how that could be right. even if it’s legal, it’s ethically wrong.

        i will look up consumer financial protection, tysm.

        • http://www.Credit.com/ Gerri Detweiler

          You’re welcome and please keep an eye on this thread as I have asked a consumer law attorney to weigh in as well.

  • Kevin

    our home has been foreclosed on and sold how do I get off my credit

  • http://www.credit.com/ Credit.com Credit Experts

    Rebecca —
    Sorry to hear you lost your house and continue to struggle with it. We are not attorneys, though, and in this situation, your attorney is probably the best person to ask about your rights.

  • http://www.Credit.com/ Gerri Detweiler

    Amy – You need to talk with an attorney yourself to learn how to protect whatever interest you have in the home. Find a consumer bankruptcy attorney in your area (NACBA is one source to find one) and talk with them asap. Hopefully you can remain in the home and continue making payments without any problem, but this is a situation where you really do need legal advice.

  • http://www.Credit.com/ Gerri Detweiler

    Not always. It depends on whether the loan was a recourse or non-recourse loan, among other things. Some debtors will be contacted by collectors trying to collect a deficiency and/or they may owe taxes on the amount written off. That’s why I recommend always consulting with a consumer bankruptcy attorney if you are going through foreclosure.

  • jean

    i have a rental home in southern califrnia. i haven’t made a payment in almost 3 years. why is the bank taking this long to foreclose? is it because it’s only worth 1/3 of what is owed on it?

    • http://www.Credit.com/ Gerri Detweiler

      It is hard to tell Jean. They may have a backlog, or your file has slipped through the cracks, or who knows? However, since this is a rental property I would strongly encourage you to talk with both a consumer law attorney with foreclosure experience AND a tax professional very experienced with 1099-c forms. That’s because even if you are lucky enough to get out of this without being sued for the deficiency, you may still get a 1099-c reporting the “cancelled” debt as income. And that could result in a big tax bill for you. I don’t mean to alarm you, but we get so many stories here on the blog from people who learned too late that they should have sought professional advice.

  • bajohannes

    My home was forclosed in 2010 and the amount it was sold for at auction was greater than the sum of my 1st and 2nd mortgates. I have still received communications indicating I still owe $40,000 (2nd mortgage balance at time of foreclosure) on the 2nd mortgage. This does not make sense to me. Shouldn’t the 2nd mortgage have been paid off with funds from the auction sale? To to be honest I’m not certain who to contact at this point about the balance. Any ideas on how I should proceed?

    • http://www.Credit.com/ Gerri Detweiler

      You need to talk with a real estate attorney familiar with short sales. If you really don’t want to go that route you could try filing a complaint with the Consumer Financial Protection Bureau, but given the amount of money involved, I’d talk with an attorney if I were in your shoes.

  • http://www.Credit.com/ Gerri Detweiler

    If it’s not clear how long the items will remain on your credit reports you may want to contact the credit reporting agencies for clarification. As for the reporting of the Ocwen account, my understanding is that if it was charged off and the information reported about it is accurate, it may still be reported even it was a non-recourse loan. You may want to consult a consumer law attorney for clarification but I haven’t heard any information to the contrary.

  • Scot

    I have tried to work with the lender for over 2 years on a modification and got no where and then had an agent place the home for short sale and the lender kept jacking up the price. My home was to be sold at auction yesterday what do I do now? Where can I turn for advise? Will property managers rent to me?

    • http://www.Credit.com/ Gerri Detweiler

      Scot – I am sure this has been incredibly stressful for you. And while one phase is over there are a couple of other things you need to consider.

      1. Are you certain that the lender can’t come after you for the balance? Did your short sale contract cover that? If not then you should talk with a consumer bankruptcy attorney asap to find out what the lender may or may not do to try to collect any remaining deficiency from you.

      2. You need to figure out whether you may owe taxes on the cancelled debt. Since Congress has failed to extend the Mortgage Debt Forgiveness Relief Act it is possible you could wind up with a tax bill from this. But you may qualify for the insolvency exclusion. More info here: 1099-C In the Mail? How to Avoid Taxes on Cancelled Debt

      As far as your credit is concerned, it probably has taken a hit but that doesn’t mean you can’t rent; however, you may have to be willing to put up a larger security deposit if you can to assure the landlord that you will pay the rent.

  • freespirit31371

    I had a question. I am off work on FMLA and currently behind on my mortgage payments. I uploaded necessary docs for modification over a month ago. I called today and they stated it can take up to 45 days. My question is, if I decide to sell the home, will the lender get to keep all the funds? example say I owe $76,000 and sell it for $90,000 does the lender get the full amount or will I receive the difference back? Thanks for your help!

    • http://www.Credit.com/ Gerri Detweiler

      If your home sells for more than is owed you should get the difference, minus any closing costs and/or real estate commissions you have to pay. Keep in mind the payoff amount could be higher than the amount listed on your statement.

  • trathman

    Hello, I live in California and I’m currently in a chapter 13 bankruptcy that was necessary to stop foreclosure on my home. The bank NOD was issued in May of 2013. I filed BK August 27th 2013. Is it true that the foreclosure filing can only remain active for one year before a new NOD must be refiled? I was told a foreclosure is only valid for one year and then must be refiled if the action has not taken place. Is this correct? Thank you!!

    • http://www.Credit.com/ Gerri Detweiler

      I don’t know the details of the procedures in California. Are you working with a lawyer to file bankruptcy (I hope!)? If so this is a question they should be able to easily answer for you.

  • Mary

    Hello I built and have owned a home since 2004 about 5 years ago a bunch of hurricanes happened and interest and insurance and tax rates went up making it hard for me to make any payments to my home. Since then my home has been in the mist of foreclosure the bank is looking to close on my home within the last 5 years. As of now they are saying I owe around 320,000 on my home when I purchased it for 120,000 originally. With that said I am willing to work with the bank and make payments but my husband is unemployed and the bank is stating that they want 3,000 a month to save my house with me, my husband, and four kids. This is way too much for me to accomplish. Is there anyway that I can get them to work on a payment of 1,500 a month with me or to do something different that I can save my home without having to pay so much towards it?

    • http://www.Credit.com/ Gerri Detweiler

      Mary – I am so sorry to hear what you have been through. Have you met with a bankruptcy attorney? If not please do so right away. The attorney may be able to help you keep your home, and catch up on payments. If not, then he or she may be able to help you move on without the threat of a potential lawsuit over your head. At this point your options are going to require legal advice. I don’t see any chance that you will be able to get your payments and balance down to something workable without legal help.

  • http://www.Credit.com/ Gerri Detweiler

    Bob – I wish I knew what to tell you. I am not sure what you are trying to accomplish – foreclose on the house? I don’t know what else to advise you other than to continue to look for a real estate attorney to help you. I am sorry I can’t be of more assistance.

  • elaine

    If my husband stops paying the mortage and let’s the house forclose which my name is not on.. but the deed is in both names will it effect me?

    • http://www.Credit.com/ Gerri Detweiler

      Elaine – You need to consult with a real estate attorney in your area. Typically if you are not on the loan then the foreclosure won’t affect you, but in some situations the lender has to take action against anyone who owns the property in order to foreclose and get the right to dispose of it. So it’s possible that you can get dragged into this even though you aren’t the loan. Again, a real estate attorney can clarify the issue for you.

  • Jennifer

    Our house was foreclosed on in 2011. If the bank sells the house for more than we owed, shouldn’t the whole thing come off our credit report? Or, should the difference be all that shows instead of what we owed at the time? If they MADE money in the deal, I think it should come off completely.

    • http://www.Credit.com/ Gerri Detweiler

      Unfortunately Jennifer that’s not the way it works. The foreclosure is public record and the fact that they had to foreclose remains on your credit reports for seven year. Other lenders don’t really care whether the bank made money on the deal: they are interested in your payment history and the fact that you didn’t pay the mortgage affects your credit scores.

  • http://www.Credit.com/ Gerri Detweiler

    Dianna – Go to see a bankruptcy attorney. Visit
    NACBA to find one in your area. We laid out various options for when you are underwater on your mortgage in this article: Underwater On Your Home? Your Six Options

  • http://www.Credit.com/ Gerri Detweiler

    I am a little confused. Who placed a charge off on your report? A different one than the company that reported the foreclosure?

    • grayglass76

      This is the same company with the foreclosure had now added the charge off.

      • http://www.Credit.com/ Gerri Detweiler

        Hmmm…was there a deficiency balance perhaps? It’s a little difficult to tell if it’s correct – but I wouldn’t rely on their word that it is! Certainly with all these foreclosures we have seen wrong information posted to credit reports. Have you tried disputing it?

        • grayglass76

          We have asked for an explanation. They assured us their account is correct-HA! We feel that this is fishy but wanted a second professional opinion before we disputed this. Who do we contact for assistance in the dispute with the mortgage company? They have made it clear they are correct and not very willing to do much for us. Is there a special lawyer or counsel we go to? No idea how to proceed.

          • http://www.Credit.com/ Gerri Detweiler

            You could start first with the Consumer Financial Protection Bureau, or you can visit the National Association of Consumer Advocates website to find a consumer lawyer in your area.

            However, i think it would still be in your interest to file a written dispute with each of the credit reporting agencies that are reporting it (keeping copies of your credit reports/dispute letters for your records). That’s going to protect your rights under federal law.

  • http://www.Credit.com/ Gerri Detweiler

    Tammy, if a foreclosure has been filed in this is a legal matter and I would encourage you to get legal advice. I’d hate to see you pay this amount and then discover they can continue with the foreclosure anyway. If you can’t afford an attorney, you may be able to get advice from a local Legal Aid office.

    Also see my reply to Pamela’s question above.

  • http://www.Credit.com/ Gerri Detweiler

    Pamela, I can’t offer you legal advice but you may want to ask your lender for a reinstatement quote or reinstatement letter. That should state the amount you need to pay to bring the loan current. If you can afford to pay the amount stated in that letter by the due date listed then you should be able to get it out of foreclosure. Make sure you get this information in writing, though, and keep a record of your payment.

    It has has to be handled properly. And really to be safe, I’d encourage you to talk with a real estate attorney, or if you can’t afford one, see if you can get help from Legal Aid.

  • http://www.Credit.com/ Gerri Detweiler

    Both situations sound like such a mess. Have either of you talk to a real estate attorney? Another option may be to file a complaint with your state attorney general and the Consumer Financial Protection Bureau.

  • http://www.Credit.com/ Gerri Detweiler

    Who knows?? But your friend should really consider getting legal advice so she can get it over with. If it’s still in her name she may be liable for injuries or municipal fees, and she could be sued for a deficiency or get a tax bill. The fact that she hasn’t heard anything doesn’t mean all is OK.

  • michel

    if you have filed for bankruptcy and months following then receive foreclosure notice ( which has been responded to by a lawyer) so it wasnt neglected paperwork.. they appraise the home for sale 1/3 of what the mortgage was for, is it possible to change the loan to that price to avoid the foreclosure of the home?

    • http://www.Credit.com/ Gerri Detweiler

      Michel – You’re going to need to talk with your attorney on this one. “Cramdowns” are somewhat limited since bankruptcy reform but your attorney will need to advise you there.

  • http://www.Credit.com/ Gerri Detweiler

    I have no idea.

  • http://www.Credit.com/ Gerri Detweiler

    Sue,

    Sorry to hear what you’ve been through. You will need to run these questions by your bankruptcy attorney. Keep in mind that if you withdraw your bankruptcy before the discharge it will still stay on your credit reports for 10 years and count as if you had gone through with it. So you essentially get none of the benefit but all of the credit damage.

  • RebeccaO

    Hi Gerri: First, thank you for your thoughtful comments – they are very helpful to read. Typical of many on this thread my husband and I own a home that is underwater by approximately 30% of it’s original value. We owe upwards of $298,000 on a home recently assessed at $245,000 but have continued to pay faithfully for 5 years. The bank will not negotiate with us for a short-sale or other easement of paying the loan because my husband and I have a reasonable combined income. We moved 5 years ago in order to find jobs and have finally settled in a new home in another state. We are both in our 60s and close to retirement – and that would be at 70 – and have not been able to save any significant amount for retirement due to this second mortgage. Finally, after several bad months of commissions (husband is in sales) we could not sustain two mortgages and all our other financial obligations. We also learned that the only way to “force” the bank to work with us was to finally stop payment. We have a lawyer, a financial advisor and are aware of possible tax requirements – what concerns us is whether Social Security can be garnished like wages. There is no settlement other than forgiveness of the loan that won’t carry into retirement for us. I was wondering what advice you might have and thanks!

    • http://www.Credit.com/ Gerri Detweiler

      It’s so frustrating that everyone seems to take for granted that the mortgage meltdown is over. But you’re a perfect example of people who are still struggling with no good solutions in sight. The only other thing I would suggest is to talk with a bankruptcy attorney to find out whether it might be possible to strip off the second by filing. Given your husband’s declining income perhaps it’s a possibility..?.

      It sounds like you’re doing everything you can to minimize the damage as best you can. Hang in there and let me know what happens.

  • http://www.Credit.com/ Gerri Detweiler

    Please see a consumer bankruptcy attorney who also has experience in foreclosure defense. They may be able to help you work out a solution and if not they can at least help you understand your rights and options. Visit NACBA if you need help finding one.

  • http://www.Credit.com/ Gerri Detweiler

    I can’t give you legal or tax advice as I am not a lawyer or tax professional. It sounds to me, though, that if they do send you a 1099-C you could fill out Form 982 and claim the bankruptcy exclusion. As for your credit reports, it is entirely possible the foreclosure will be reported if it ends up in the public record under your name. However, since you discharged it in bankruptcy it seems like you could challenge it. (I am not certain, though, as this isn’t a situation I have encountered before.) You may want to check your credit reports in a few months to see what shows up.

    As for this comment: “as the government has stepped in on alot of these short sales rejected by the bank”…???? They may be nervous about the recent CFPB enforcement action against a mortgage servicer for failing to properly process mortgage modification applications. I don’t know whether you can use that to your advantage, but why not try? File a complaint with the CFPB immediately and then see if perhaps your bankruptcy attorney is able to help – some also do foreclosure defense work. The attorney may also help you determine if it’s worth it to try to keep this house or if it’s best to move on.

    Hope things work out for you. I am sure this has been incredibly stressful.

  • http://www.Credit.com/ Gerri Detweiler

    I’m sorry to hear the difficulties you been through. At this point it’s a legal matter and you really need to get legal advice. If you can’t afford an attorney you may be eligible for help through Legal Aid.

  • Andy

    Wife is only borrower on Florida foreclosing Countrywide/BOA mortgage loan, she signed the note only. Both of us signed security instrument/mortgage. My credit shows 4-years of late/missed payments and I never signed the promissory note, can I sue BOA for destroying my credit???

    • http://www.Credit.com/ Gerri Detweiler

      It definitely sounds like you should consult a consumer law attorney with experience in credit reporting cases. Florida is not a community property state so it’s possible this is a mistake and you may have a case for credit damage, which could help you get your credit cleared up and also result in damages.

  • http://www.Credit.com/ Gerri Detweiler

    Hmmm… Interesting. At this point I think just about anything is possible in the world a mortgage financing. However, it sounds like it’s unclear what will happen at this point. Have you talked to a housing counselor or a local legal aid office to find out what your rights are here? You will find some resources here: http://www.consumerfinance.gov/mortgagehelp/

  • http://www.Credit.com/ Gerri Detweiler

    Your friend really really needs to talk with a consumer law attorney who handles foreclosure defense. Obviously there has been a servicing mistake and he has to find out what his rights are to resolve it.

  • corby

    after a 2 year span of not being able to pay our second mortgage, loan we called them and agreed to a monthly payment arrangement ( to keep in good standing), and now they are demanding a higher monthly payment 6 months later,or they will proceed with Forclosure, we never missed a payment and told them we cant afford an increase and can keep the payments as is, but keep getting harassed, please advise on an option

    • http://www.Credit.com/ Gerri Detweiler

      A lender is not obligated to provide you with a payment that you can afford. If you can’t pay the amount specified in your contract when you took out the loan they certainly can proceed with foreclosure, and I would never trust an amount that a lender offered to accept verbally. I would really encourage you to meet with an attorney who handles both bankruptcy and foreclosures. Sometimes it is possible to get a second mortgage wiped out through bankruptcy, but you really need an expert to go over your situation with you. If you need help finding an attorney you can visit the NACBA website.

  • http://www.Credit.com/ Gerri Detweiler

    I really wish I could advise you but I think you need to talk with a consumer law attorney. If you are not sure how to find one I can suggest two resources: one is the NACBA and the other is the website of the National Association of Consumer Advocates. I would be interested in hearing how this turns out for you.

  • http://www.Credit.com/ Gerri Detweiler

    Great question. I don’t know the answer so I’ll have to look into it.

  • Brenda

    I live in Indiana. If my commercial building is foreclosed upon, can the bank collect the deposits I made to all my utility companies?

    • http://www.Credit.com/ Gerri Detweiler

      I don’t know you’ll have to check with a local attorney. It’s hard for me to see how they can collect that money but I can’t say for sure.

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry I don’t know which question this refers to.

  • http://www.Credit.com/ Gerri Detweiler

    I’m really sorry to hear that. Unfortunately, foreclosures can be reported for seven years from the date of foreclosure. This is one of the risks of walking away from a property without getting legal advice. The other risk is that you potentially could get a 1099-C which may or may not result in a tax bill. And I don’t know if it’s too late for them to go after deficiency if there is one. I would really encourage you to at least talk to consumer bankruptcy attorney familiar with foreclosures to find out your rights here. I’d hate to see you hit with any additional unexpected expenses.

  • http://www.Credit.com/ Gerri Detweiler

    Yikes – sounds like you are either an identity theft victim or getting mixed up with someone else. Have you contacted the company that ran the background check?

  • http://www.Credit.com/ Gerri Detweiler

    Holly – I spoke with an investigator at Identity Theft 911 who shared this advice.

    1) Get a copy of the background report from whoever she had run it. By they are required to release it. This will allow he to dispute the item with the company.

    2) She should also order a copy of LexisNexis personal report which should also show the foreclosure allowing her to get the details and dispute it to.

    Will you try it and let us know what happens? Please let us know if you aren’t able to get to the bottom of it.

  • Forlanda Peel

    my home was foreclosed on and sold back to the lender. I want notified that this was happening until the day before it happened. My letters from their attorney arrived the day before the sale. When I called their attorney asking about a reinstatement I was told I was too late because I didn’t respond to the letters. The certified copies of the letters showed up in the mail about 4;30 that afternoon day of the sale. They were postmarked two days before the sale. letters were dated 13 days before the sale. No notification ran in my local paper it ran in the county that the law firm is in over an hour away.I was told that I my loan was being processed for a loan modification by an executive from Chase. Is this legal ? Since they have already foreclosed without notice can I get my home back ?

    • http://www.Credit.com/ Gerri Detweiler

      You will need to talk with an attorney familiar with foreclosure law in your state. If you can’t afford one, you may be able to get help through Legal Aid.

  • http://www.Credit.com/ Gerri Detweiler

    Your bankruptcy attorney is your best source of advice here. I understand you are looking for reassurances, but working with an attorney who understands laws in your state is your best option.

  • http://www.Credit.com/ Gerri Detweiler

    Not necessarily. It depends on the laws in your state. In some cases, the bank may own the property at that point. Or there may be fees they are entitled to. I would recommend you speak with a local real estate attorney.

  • http://www.Credit.com/ Gerri Detweiler

    Matt is correct. The clock on the reporting period starts clicking when you fall behind. In the case of collection accounts, they can be reported for seven years plus 180 days from that date. Late payments may be reported for seven years.

  • http://www.Credit.com/ Gerri Detweiler

    Have you spoken with an attorney? Please do! The lender may have made a mistake and the attorney may help you save your home.

  • http://www.Credit.com/ Gerri Detweiler

    Before you walk away please talk with a bankruptcy attorney. It’s not as simple as just leaving. You may still be on the hook for bills, including any deficiency. At least if you file you can make a clean break.


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