What is foreclosure?
Foreclosure is a process that concludes with a home lender selling a borrower’s property. It is authorized by the homeowner in order to protect the lender if the homeowner fails to make his or her mortgage payments.
A homeowner authorizes foreclosure when signing the loan agreements (promissory note and deed of trust) in closing a home purchase. The foreclosure begins with a notice of default and concludes with the sale of the home. The timing for the notice of default is governed by the terms of your promissory note and deed of trust.
Although it is a legal action, in most cases the mortgage lender will not be required to go to court to sell a home in foreclosure. Similar to a wholesale auto auction, a home sells in foreclosure for a substantial discount from its market value.
If a foreclosure involves a home with two or more mortgages and the sale does not generate enough money to repay both mortgage loans, the homeowner not only loses his or her home but also faces the prospect of repaying any loan that is not paid in full from the foreclosure sale. If a homeowner fails to repay such sums, the lender has the option to sue the homeowner to collect this deficiency balance.
No one chooses foreclosure
We understand that bad luck, not personal choice, can cause a home to slip into foreclosure. Unfortunately, life has an interesting way of affecting our financial affairs.
In most cases, a foreclosure results from life-changing events such as:
- Divorce
- Job loss
- Job change that results in less income
- Injury
- Illness
The stress of these unfortunate events is compounded by the inability to repay your financial obligations undertaken prior to the life changes. To make matters worse, if you do not act quickly to sell your home, the bank will initiate foreclosure proceedings. Your home will be sold at a public auction and you will be financially responsible to repay any sums due and owing to creditors and your ability to purchase a home in the future will be highly compromised.
The Notice of Default
The first step in a foreclosure is the notice of default. This notification by your lender usually states the amount you owe to bring your loan current.
In most cases, your lender will not accept partial payments once you have defaulted on your mortgage payments. All mortgage arrearages must be brought current to avoid the lender initiating a foreclosure action.
More importantly, once you receive a notice of default all past payments as well as late fees, and the lender’s expenses incurred in the foreclosure action must be paid in full no later than 11 days prior to the sale date.
Timing
Under Washington law, a lender who commences a foreclosure action must comply with certain timing requirements prior to selling a home.
- Notice of Default. When you fall behind in your house payment for a certain number of days, you will receive a “notice of default”. The notice of default will state the amount of money that is necessary to bring your home loan current. The timing of the actual “default” depends on your deed of trust.
- Notice of Foreclosure and Notice of Sale. If you are unable to pay the arrears stated in the notice of default, the lender may initiate the foreclosure action by delivering to you (and certain other parties) a “notice of foreclosure” and a “notice of sale”. Under Washington law, you have 30 days to pay the arrearages set forth in the notice of default before a lender can record the notice of sale. Also, the notice of sale must set forth a foreclosure sale date at least 90 days from recording the notice of sale.
- Foreclosure Sale. A public auction will take place on the date set forth in the notice of sale if you fail to make all past mortgage payments, late fees and lender expenses to your lender. Also, under Washington law, the lender is only required to accept the full payment of the arrears up to 11 days before the sale date. If you are unable to cure the default before this time, the lender will sell your home and apply the proceeds of the sale to pay off your home loan. The buyer of your home may take possession within 20 days of the sale date.
To summarize, here is a timeline of the foreclosure process under a deed of trust in the state of Washington:
**Please note, 190 days must elapse from the initial default (date that borrower was first late on loan payment) to the foreclosure sale date.
Deficiency balance
If you allow your home to go through foreclosure, you not only face serious long-term credit problems, but you may also be liable to pay your lender a deficiency balance. A deficiency balance is the difference between the home’s sale price and the total of all mortgages loans, attorney’s fees, late fees and interest to your lender.
For example, if your home sells for $300,000 and your first mortgage is $250,000, your second mortgage is $50,000 and the fees incurred to foreclose upon your property are $20,000 then you will be liable to pay the bank $20,000 ($300,000 - $250,000 - $50,000 - $20,000).
If you fail to pay this deficiency balance, the bank will file a lawsuit against you and will obtain a civil court judgment against you. Once the lender has obtained a judgment, it may proceed with wage or bank account garnishment proceedings to compel your payment of the deficiency balance.
Adjustable rate mortgages (ARM)
A homeowner’s inability to pay the mortgage may also result from an interest rate adjustment on an Adjustable Rate Mortgage (ARM). We have seen monthly mortgage payments balloon over $1,000 when the interest rate on an ARM adjusts from the rate received 3 years ago to today’s interest rate.
When a homeowner is on a fixed budget, an ARM adjustment can result in the homeowner being unable to pay the full mortgage payment each month. After several months of making partial payments, the lender usually will seek to initiate foreclosure proceedings.
Loss mitigation
Surprisingly, your lender understands that people go through difficult financial times. To avoid a costly and time-consuming foreclosure action, your lender will usually maintain a system to work with homeowners trying to avoid foreclosure. This system is commonly referred to as “loss mitigation”.
In fact, most lenders have a separate loss mitigation department that is responsible for evaluating and approving proposed short sales on a case-by-case basis. Our loss mitigation strategies are designed to sell your home quickly, rescue you from foreclosure as well as saving you money and the time and hassle of dealing with this complicated process.
Short sale transaction
A short sale is a home sale where the home’s sale price is insufficient to pay off the homeowner’s mortgages and/or liens on the property. Every lender has different short sale requirements that must be fulfilled prior to accepting an offer for sale. Such requirements include anticipated sale price, qualified buyers and sale terms such as proposed contingencies and closing date.
Because every lender has different short sale requirements, it is very important to retain an experienced loss mitigation specialist who can properly advise you on your options. A traditional real estate agent inexperienced in short-sale representation may not only cost you valuable time and headaches, but may ultimately cause foreclosure to occur despite your best efforts to avoid it.
How we help
Our first step is to meet with you and discuss your individual situation. At our initial meeting, we also review all documents and loan agreements to determine the status of your loan obligations.
The next step is to contact your lender through its loss mitigation department to discuss the facts behind your loan default and the threatened or pending foreclosure. While most short-sale scenarios require only lender approval, other sales require the approval of other secured creditors such as the IRS, the state of Washington or other creditors who have recorded a lien against your home and property.
Because time is of the essence, we move quickly to list your home and market it to potential buyers. If necessary, we may request that the lender extend the sale date if an offer is accepted to avoid a potential foreclosure sale.
After both you and the lender have accepted a buyer’s offer, we carefully track the transaction through closing. If any issues arise (they often do), we work collaboratively with all parties to resolve the issue.
Following the sale, we are available to assist you in locating a new home or to discuss any post-closing questions you may have. We realize this is a difficult time, so we welcome any questions you may have during the short-sale process.
Short-sale benefits…
A successful short-sale will result in the following benefits to you:
- Financial Savings. The lender waives any deficiency balance resulting from the short-sale. This means that you do not have to pay any amounts due and owing to your lenders following a short sale.
- Foreclosure avoidance. When a lender agrees to a short-sale, you avoid a foreclosure sale. Because a foreclosure sale involves significant economic losses and lender time, future lenders may be hesitant to lend money to you when a foreclosure sale appears on your credit report. To this end, it will be extremely difficult for you to purchase a home for significant period of time following foreclosure. In addition, those who allow their homes to be foreclosed upon will be penalized with higher interest rates and difficulty obtaining future credit. Thus, by choosing a short-sale over a foreclosure sale you will not only save yourself thousands in avoiding a deficiency judgment and future interest penalties, but you will also re-establish your credit much sooner.
Questions
We welcome questions regarding your individual situation. To contact us, please call: 206 909-8777 (toll free: 1-800-206-6612) or email us at: info@navigationre.com.
