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The Coronavirus Aid, Relief, and Economic Security (CARES) Act offers mortgage relief for homeowners with federally backed mortgages. The act offers a foreclosure moratorium and the right to forbearance if you are experiencing financial hardship due to the COVID-19 coronavirus pandemic. If you do not have a federally backed mortgage, contact your mortgage servicer to discuss your relief options.
If you’ve fallen behind on your mortgage payments, the threat of foreclosure can become overwhelming. Struggling homeowners might feel inclined to simply accept their fate—there’s no getting out of foreclosure, right? But when it comes to mortgage foreclosure, remember that you have options.
Understanding those options and what you can do if your house is in foreclosure can help you mitigate the damage done to your credit and overall financial health. It might even help you take action to keep your home. We’ve gathered some general information regarding foreclosures to help you get an idea of how it works. State laws vary significantly, so work with a legal professional to determine the laws governing your foreclosure proceedings.
Foreclosure means that your mortgage lender can legally repossess your house due to nonpayment. They can then sell your house to help repay the debt you owe on it. This is true whether you are behind on your first or second mortgage. Your mortgage agreement will define when your lender can begin the foreclosure process. This is typically determined by the length of time you are behind on your payments.
Keep in mind that every state has different rules and regulations for foreclosure procedures, and many states offer exceptions to this that may work in your favor. If you think you may be in danger of foreclosure, work with a legal professional to determine your state’s guidelines. For example, in some states you have to miss a certain number of payments before foreclosure processes can begin. Some states may also allow you to reinstate the loan up until a specific deadline.
The foreclosure timeline can vary significantly. State and Federal laws, your mortgage agreement and the mortgage holder’s motivation are major factors. In many cases, the foreclosure process starts three to six months after you miss your first payment, assuming you don’t make or catch up on payments.
State laws vary, so be sure to work with a legal adviser or your lender to determine what will happen in your specific situation. In general, mortgage foreclosure involves the following steps.
Foreclosure actions can wipe out some of the property owner’s debt, such as the original mortgage, home equity loans and second mortgages. If the proceeds of the foreclosure don’t cover all the costs of your second mortgage or other home equity loans, you are still obligated to pay those.
In some cases, you might also be responsible for some of the mortgage payment, even after losing your home. If the property sells for less than the balance owed on the original loan, a lender could file a deficiency judgement against you in court, which requires that you repay the difference. This also gives the mortgage holder the right to collect the remainder of the debt owed from any other assets you might have. Not all states allow deficiency judgments in all circumstances. Work with a lawyer or legal adviser to determine your rights and plan of action.
Lenders have different obligations in different states. However, when it comes to mortgage foreclosures, they all typically follow at least three common requirements.
The best way to stop a foreclosure is to take action to prevent the lender from beginning the process. When possible, try these proactive ways to save your home from a foreclosure.
If the lender has already filed for a foreclosure and none of the options above will work for you, you might be able to legally fight the filing with a technical or substantive defense. Only you and your attorney can determine how to proceed through the process.
Technical defenses are defenses to the foreclosure proceeding itself. One example of a technical defense is when a property owner is not given adequate notice of the default and proceedings. However, technical defenses are often not very helpful in preventing foreclosures because a mortgage holder can easily correct 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 beginning the proceedings over again.
Substantive defenses use the terms of the mortgage itself to halt a foreclosure. Here are some examples of substantive defenses to the foreclosure process:
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 sale takes place, after the sale takes place or before the court ratifies the sale if the sale was improperly conducted. Work with your attorney to determine whether this is the right move for you.
When a debt is forgiven in a foreclosure action, taxpayers are considered to have made money. That means that the taxpayer or property owner may owe taxes on the difference between the value of the home and what is owed on the mortgage and forgiven in the foreclosure action. You will want to work with your tax professional to help determine your tax responsibility in this situation.
Consider this example to understand how it might work:
Short sales and other foreclosure proceedings can drop your credit score by a substantial amount. Likely, even if you stop the foreclosure and get back on track, your credit has taken a hit because the late payments would have been reported. Foreclosure will appear on your credit report for seven years. And in many cases, you will be required to wait two to eight years before you can purchase another home.
No matter what happens with a foreclosure, it’s a good idea to find out where your credit stands and how you can work to improve it. That way, you position yourself to be able to find a new home in the future—whether you buy or rent. Sign up for the Credit Report Card today to get a free look at your credit history and better understand how you’re doing with the five factors that impact your score.
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