The Foreclosure Crisis:Saving your American Dream
What is foreclosure?If you have a mortgage on your home and fallbehind in payment (usually after 3 months), thebank or lender has a legal right to take over yourhome.This means you will need to move, and it mayalso affect your credit score.
What if I can’t make my mortgage payment?• Talk to your lender, explain the circumstances. Ask for the “Loss Mitigation Specialist”.• Know your options: Contact Muncie Homeowner and Development Center 111 E. Adams St. 282-6656Other HUD-approved counseling centers can be found athttp://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?&webListAction=search&searchstate=IN or by call 1-800-877-8339
Other tips:• Keep the letters from your lender—ignoring them won’t make the problem go away!• Don’t fall for scams—avoid counseling companies that charge or others that offer to help you sell your home.• Stay in your home until after the foreclosure.Find more info athttp://portal.hud.gov/hudportal/documents/huddoc?id=fha_saveyourhome.pdf
I’ve received a notice of foreclosure— what happens next?In Indiana, you have to right to request amortgage settlement with your lender. At thesettlement conference you will meet with arepresentative from the lender to discussalternatives to foreclosure.For detailed information about the process go towww.877gethope.org or call 1-877-GET-HOPE
If you want to stay in your home, some options may include:• Forbearance—the lender agrees to suspend or lower payments for a set amount of time.• Loan Modification—payments are lowered due to less interest or a longer loan period.• Repayment
If you decide not to keep your home, these options may exist:• Short sale—you sell your house for less than what is owed to the lender• Deed in lieu of Foreclosure—the house is given back to the lender.More information about options can be found atwww.in.gov/judiciary/selfservice/2359.htm
If no settlement is reached, what is the legal process involved in foreclosure?• The lender will file for foreclosure with the court.• The court will hold a trial—you will have an opportunity of file an “answer” in the case, otherwise you will lose by default without a hearing.• If the court rules for foreclosure, you will be evicted from the house.• For more information or to find legal help, go to Indiana Legal Services www.indianajustice.org,
The Foreclosure Crisis:Saving your American Dream
How do I find foreclosed properties?There are several ways to locate listings of foreclosures,also know as “distressed properties.” Private companiescollect foreclosure listings from lenders such as banks,mortgage brokers, corporate sellers, and governmentagencies, then list them on the Internet.
Where Do I Look?Most foreclosures databases are searchable by state, city,zip code, and price. Some are searchable by a property’sstatus, eg. pre-foreclosure, foreclosure, auction, bankruptcy,short sale, or sheriff’s sale. They also are a source offoreclosure statistics.Private foreclosure listing sites:www.foreclosure.com/www.realtytrac.com/home/www.bankforeclosuressale.com/list/indiana.htmlwww.foreclosurefreesearch.com/
Where Do I Look?Government-owned properties also can be searched onmany of these databases. Agencies such as HUD (Housingand Urban Development), VA (Veterans’ Administration), IRS(Internal Revenue Service), Fannie Mae, and Freddie Mactypically have repossessed properties available.Search government-owned properties athomesales.gov/homesales/mainAction.do.Search Fannie Mae at www.homepath.com/.Search Freddie Mac at homesteps.com/featuresearch.html.Search the IRS atwww.treasury.gov/auctions/irs/cat_Real7.htm.
What are different types of “distressed properties”?• Pre-foreclosures: Properties still owned by borrowers who are in default.• Auction properties: Properties offered in a public auction sale, where the new owner pays in full and takes immediate possession.• Real Estate-Owned (REO): Properties still owned by a bank or other lender after an unsuccessful auction sale.• Federally-insured properties: Some loans are backed by the government (eg. VA, HUD, Fannie Mae). These agencies reimburse the lender, then market the property through public sales or contractors.
What’s a “short sale”?In a short sale, the owner of a distressed property can avoidgoing through foreclosure when a third party buyer negotiatesdirectly with the lender for a sale at a price below the amountactually owed on the property. In other words, the lenderagrees to take a loss in order to get rid of the property. Thenew buyer will likely bargain with the lender in a series ofoffers/counteroffers until a price is determined.
What’s the buying process? Click through this handy tutorial to get an overview of the buying process for pre-foreclosures, auction sales, and REO’s.http://www.realtytrac.com/foreclosure/how-to-buy- foreclosures.html
Pitfalls in buying distressed properties• Properties are sold “as is.” The buyer will be responsible for updates or repairs and should review the property with an inspector or contractor. Run the numbers with a Renovation Calculator: cgi.money.cnn.com/tools/renovation/renovation.html• The buyer must secure their own financing prior to purchase and must know how the funds will change hands (eg. cash, cashier’s check, etc.).• A pre-foreclosure property retains all debts (eg. loans, mortgages, liens, judgments, etc.), which must be paid off. The buyer must investigate the property’s history to understand its financial obligations.
More pitfalls• A buyer for a pre-foreclosure property must negotiate with all the people named on the title. All must be in agreement for a final contract to be signed.• The buyer must check recent sales prices for comparable properties before entering into a sales contract to avoid paying a price above the property’s market value.• Buy title insurance to protect against title defects that "cloud title“, or cast uncertainty on the buyers ownership rights, such as undiscovered liens, forged signatures or defects in documentation.
Find a real estate attorneyA real estate attorney can help negotiate with owners or lendersand clarify procedural or title concerns associated with distressedproperties.Contact the Muncie Bar Association atwww.inbar.org/LocalBars/DelawareMuncie/tabid/172/Default.aspx. The I Want To Find a Lawyer tool at www.martindale.com/also can locate a local attorney. In the Practice Area box, choose“Real Estate”.
Find a house inspectorA professional inspection of a distressed property beforepurchase may reveal unexpected defects that affect themarketability of the property and the price you shouldoffer.Ask friends, business associates, or your real estateprofessional to recommend a reputable inspector in yourarea, or consult the American Society of HouseInspectors website at www.ashi.org/find/default.aspx.
Federal Mortgage SettlementIn response to widespread industry misconduct andits role in the foreclosure crisis, this settlementmandates five major mortgage servicers to reformmortgage loan practices and provide relief forstruggling homeowners. Ally/GMAC, Bank ofAmerica, Citi, JPMorgan Chase, and Wells Fargo areaffected. All state except Oklahoma are parties inthe settlement.
Key Terms of the Mortgage Settlement• Relief for Struggling Homeowners. Assist borrowers in default or at risk of default through principal reduction, assistance in short sales, or unemployed payment forebearance.• Refinancing of Underwater Homes. Banks must notify borrowers of refinancing programs. Eligibility restrictions apply.• Mortgage Servicing Reforms. New guidelines prohibit robo-signing and “dual tracking” (where banks pursue foreclosure while simultaneously engaging the borrower in loss mitigation). They also mandate loss mitigation discussion and fair response times to borrowers.• Monitoring and Enforcement. An independent Monitor will oversee banks’ compliance and report to the attorneys general. Violations will be subject to civil penalties of up to $5 million.• Payments to Foreclosure Victims. Borrowers who were improperly foreclosed upon or not offered loss mitigation may claim a $2,000 payment and are free to pursue additional claims in court.• Release of Claims. Named bank parties are released of claims brought by attorneys general or federal banking regulators.