It is readily understandable when people in financial distress make bad decisions and a notice of default or foreclosure from your bank is certainly distress inducing. I will list some things that everyone in this situation should at least look into. I will focus on Washington law, which may be instructive to people in other states but care should be taken to verify the law of your state. This almost certainly requires seeing a lawyer.
Almost all foreclosures are deed of trust foreclosures but you must know what type of instrument encumbers your home. For example with seller financing, if you went that way instead of conventional financing, a real estate contract may be involved and sometimes a mortgage rather than a deed of trust is involved. Because mortgages have used in all states the literature usually refers to “mortgage foreclosures” and when used in this way “mortgage” is being used as a generic term covering any or all of the three mentioned security instruments.
I will be writing in reference to nonjudicial deed of trust foreclosures because over 99% of home foreclosures are of this sort. It is called “nonjudicial” because there is no lawsuit; instead there is only a series of notices culiminating in a trustee’s sale.
The sequence of events involves typically a few preliminary letters from the bank. This is followed by a notice of default which is a formal notice that starts the statutory foreclosure process. It is mailed, and may be served or posted on the door. It contains information about the debt and information about the foreclosure process. After at least a month and maybe a longer period you receive a notice of foreclosure and a notice of trustee’s sale. These have all the details about the foreclosure sale and the debt to the bank and set the time and date of the foreclosure sale (called the “trustee’s sale” in the notice). Notices are published and recorded but there a no more notices sent to the homeowner.
What to Do
1. Read every letter and notice carefully. This is rarely done. Most people are so upset they do not know what the communications say, but they contain vital information that must be considered.
2. Try to refinance. Make this a rigorous process. Talk to the foreclosing bank if you can and other banks, then talk to several mortgage brokers. They do not all have the same information or ability.
3. Consider selling. There are so many of these sorts of sales that they warranted a name: “short sales,” meaning they have to close before the trustee’s sale. Find a good real estate agent with whom to list the property. Again talk to more than one. The listing agreement should include exactly what will be done to market the property. Put that in — all the details — because the form will only have very general information. Get the most aggressive plan that you can find. Often there are scheduled price reductions as you get closer to the sale date. If you do this, write to the bank to see whether the bank will cooperate with the sale. It may agree to put the foreclosure off to allow a sale by you because if the foreclosure goes through the bank usually ends up with the property and then it has to try to sell it. Your sale of the property can save the bank time and money.
4. Inquire about programs to help you you bring the loan current. You may qualify for a program designed to assist you. There are not many of these but inquire of the city, county and state whether there are any programs that might provide financial assistance.
5. Talk to a bankruptcy lawyer. Bankruptcies are intended to provide relief for this sort of financial distress. There may be a plan which will enable you to bring the loan current. Even if there is no such plan available, you may be able to sell the property under the protection of the bankruptcy court so as to be able to preserve the equity you have in the property.
6. You are likely to receive a number of “rescue” proposals in the mail. Do not enter into any of these without consulting with a real estate lawyer. Usually the inducement for people to offer these to you is that they can take your equity in your home. There are dozens of ways to accomplish this. These “rescues” are so frought with peril for the home owner that you should absolutely never enter into one without legal advise and a clear understanding of what is happening. Some of these “rescues” even involve identity theft and forgery, so do not even apply for anything before you are certain of what you are doing and who you are doing it with.
7. Make sure your adviser complies with the law and make sure that everything of consequence that you are told is put in writing. You can just jot it down and ask the adviser to sign it. In any case there should be a record of the things that you are told. Also be aware that these “advisers” are probably required to be licensed as a real estate agent. Find out all you can about the person and his or her history. Find out how many of these deals they’ve done and how many ended in the eviction of the homeowner. Get this in writing. Do a property record search to see how many homes this person or her company has taken. Search for everyone involved in the transaction, as there are usually at least two people and a company or two.
The Bill to Prevent Scams
The Washington legislature just passed a law to regulate people who come forward with advice for you about how to escape your situation. As of this writing House Bill 2791 has not been signed by the governor but it surely will be, as it passed both the state senate and house without a dissenting vote. It should become effective 90 days after being signed by the governor.
This bill requires that a number of different written disclosures and notices be provided to the homeowner by the “distressed home consultant.” The terms of the transaction must be spelled out in detail, including all the money being paid to the consultant and others who are involved. This must be signed by both parties. If the consultant represents anyone else, this must be fully disclosed in writing. Follow up on this very carefully. Find out all the details of the other relationship and be sure you get them in writing.
The bill creates a fiduciary duty from the adviser to you. This is the highest duty imposed by law. You are owed the duty of complete disclosure and full honesty. Your questions and concerns must be fully addressed. They are required to act in your best interest, so it is quite possible that a relationship with someone else in the transaction creates a conflict of interest.
All contracts are required to be in the language used by the homeowner. (This requirement would reduce fraud in a number of different situations apart from foreclosures, but at least in Washington I believe that it stands alone.)
The contract must comply with a number of requirement, including a notice of a five day cancellation right.
No doubt the most significant substantive right created by the bill is the duty of the consultant to verify that in fact the homeowner is able to buy back the home. Usually in these situations, the home owner is given an option or something of the sort to buy the property back after giving it away. In my experience it is unusual for a homeowner to be able to exercise this right before it terminates. This bill puts the burden on the facilitator to verify, and be able to prove, that the home owner had the ability to buy his or her home back.
Another provision with teeth is the requirement that the homeowner recieve at lease 82% of the market value of the home before an eviction can be done. This will certainly slow down people motivated by windfall profits and it gives assurance that the homeowner will not usually be left homeless and penniless.
There are a number of other aspects of the bill but time prevents a full discussion.