Foreclosure FAQs
For homeowners, the one word that they never want to hear is foreclosure. Whether through tragic circumstances or a situation beyond their control, foreclosure is a threat that can lead to many problems in the future. Fortunately, foreclosure is something that can be avoided if you know where to get help. Over time we’ve collected the most frequently asked questions by homeowners who are facing foreclosure.
An index to these questions follows. If you click on a specific question it will take you directly to the answer.
General Overview
I received a foreclosure notice, what should I do?
What options do I have once I’ve received a foreclosure notice?
So, what are the main points I should know about Foreclosure?
How can I avoid foreclosure scams?
Questions about the foreclosure process
What is the redemption period for buying my house back?
Who gets the money when the house is sold at the sheriff’s sale?
How long does the foreclosure process usually take?
Can the bank just kick me out of my house?
I’m in foreclosure. Should I just walk away?
I would rather sell my home than lose it to foreclosure… Is this possible?
Foreclosure is actually the last step of a long process that allows a lender to recover the amount owed to them on a defaulted mortgage by taking ownership of the house that secures the mortgage, and then re-selling it.
The entire process starts with the pre-foreclosure phase. This begins when a homeowner misses a mortgage payment and the lender sends a late payment notice. If the homeowner ignores this notice and misses another payment, another notice will be sent. After the third missed payment and the third notice is sent, your loan is considered “non-performing”.
Foreclosures by lawsuit are permitted in Michigan; however, the standard mortgage document used by most lenders in Michigan contains a power of sale clause that allows them to sell a property through a non-judicial “Foreclosure by Advertisement” process.
Using this form of foreclosure, a “Notice of Foreclosure Sale” is published once a week for 4 weeks in a newspaper that circulates in the county where the property is located. The notice must also be posted in plain sight at the property and the lender has a right to enter the mortgaged house for this purpose.
At anytime throughout this process, the homeowner can end the foreclosure process by paying all late payments, plus penalties, and legal fees. If they are unable to do this, the property will be sold at a “Sheriff’s Sale” which typically takes place in the fifth week after the notice is given to homeowner.
The Sheriff’s Sale is actually an auction where the house is sold to the highest bidder. The bank will usually be the highest bidder unless an outside bidder offers more than what is owed on the house. However, this is unlikely and in most cases the bank now owns the house. The amount of the sale is typically the principal balance of the mortgage plus interest, late charges and legal and court costs. A Sheriffs deed will be recorded transferring the title to the bank.
If you are still living in the house at this point you have 6* months to redeem it by paying the full amount of the sheriff’s sale plus any additional interest. At the end of the 6 month period, you will be evicted from the house and the foreclosure is complete.
*If the property is over 3 acres, you have 12 months to redeem it.
The bank will now list the house for sale through a real estate broker.
If you are facing foreclosure, the best thing to do is face up to it early in the process. Contact your lender and explain your situation. They may be able to workout a plan to get you back on track. If you are experiencing a hardship that makes is impossible for you to continue making payments, a “short sale” may be your only option.
I received a foreclosure notice, what should I do?
Contact your lender immediately; explain your situation and why you are having trouble making your payments. Provide them with your monthly income and expenses . . . and be honest! Do not ignore the letter!
Do not move out of your home! If you do, it may be considered abandoned and cause you to not qualify for assistance.
Review your options as soon as possible. The longer you wait the fewer options you will have.
What options do I have once I’ve received a foreclosure notice?
- You may be able to refinance
- Attempt a loan modification that adjusts the terms of your loan
- You can try to selling the house yourself
- You can try to “go current”
- You can deed your house over to an investor or lender
- Bankruptcy
- You can do nothing
Note: You can find more details on these options under What are your options?
So, what are the main points I should know about Foreclosure?
Don’t allow the foreclosure to complete and damage your credit history if you can help it. There are other options.
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Call or write your mortgage lender immediately.
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Stay in your home to make sure you qualify for assistance.
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Cooperate with the counselor or lender trying to help you.
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Explore every alternative to foreclosure.
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Beware of scams.
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Do not sign anything you don’t understand.
Remember that signing over the deed to someone else does not necessarily relieve you of your loan obligation.
I’ve received letters and notices from people claiming they can help me save my home…. Are they for real?
When foreclosure documents are filed they become a matter of public record and many people review these records for various purposes such as compiling lists to sell to bankruptcy attorneys, investors, real estate professionals and other people interested in either purchasing your home or . . . helping you save it.
Some of these offers are probably legitimate but most come from people who are in the business of making a profit from your foreclosure situation.
How can I avoid foreclosure scams?
You can usually spot a scam because it sounds too simple or too good to be true.
If you’re selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty.
Be sure to follow these precautions:
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Don’t sign any papers you don’t fully understand.
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Make sure you get all “promises” in writing.
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Beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale.
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Check with an attorney and a real estate professional or your lender before entering into any deal involving your home.
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Some groups calling themselves “counseling agencies” may approach you and offer to perform certain services for a fee. Most of the time these services are things you can do such negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale.
What is the redemption period for buying my house back?
The redemption period starts after the home is auctioned off at the Sheriff’s Sale. If you are still living in the house at this point you have 6* months to redeem it by paying the full amount of the sheriff’s sale plus any additional interest. At the end of the 6 month period, you will be evicted from the house and the foreclosure is complete.
*If the property is over 3 acres, you have 12 months to redeem it.
Who gets the money when the house is sold at the sheriff’s sale?
First, all real estate taxes are paid. Then first, second, third etc., mortgages are paid. Next comes any lien holders or attaching creditors. Finally, you’ll get any money left over after all debts are satisfied. Typically, paying there are not even enough proceeds to payoff the first mortgage so everyone else gets nothing.
How long does the foreclosure process usually take?
The foreclosure process can take up to 12 months to complete however, the typical foreclosure takes about eight months.
Can the bank just kick me out of my house?
No. Only a court order, called eviction, can force you to leave your home. The lender must file a foreclosure notice first, and then, only after the foreclosure process is complete, can the bank start eviction proceedings.
I’m in foreclosure. Should I just walk away?
No. This may sound like the easiest choice but it is not the best choice. There are other options that are just as easy and will be less damaging to your credit.
A short sale is actually a process that allows the homeowner to sell the property with the bank’s approval, for less than what is owed to the bank, and stop the foreclosure process.
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With a foreclosure, your credit score may be lowered by 250 to 300 points. Typically they affect your score for over 3 years. In a short sale, the credit score is lowered by much less and the mortgage will be reported as paid or negotiated, while affecting your score for 12 to 18 months.
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A foreclosure remains on the credit history for 10 years or more. A short sale is not reported on a credit history. It is usually reported as “settled for less than the full amount”.
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A foreclosure takes much longer to process than does a short sale, resulting in a higher amount of the deficiency judgment for additional taxes, maintenance, and interest costs. A short sale will usually have a much smaller judgment associated with it.
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A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae mortgage for five years. A short sale homeowner is eligible for a Fannie Mae backed mortgage after only two years.
No one wants to be in a situation to have to make this choice. But if forced to choose, the short sale route is truly the lesser of two evils.
Can records of a foreclosure be removed from my credit report after the lender has taken back the property?
No, a foreclosure will stay on your credit report for 7 years. After that you will probably need to submit a written request to the three major credit reporting agencies that it be removed.
I would rather sell my home than lose it to foreclosure… Is this possible?
Yes! There are several options depending on the amount of equity you have in your home. You could list it with a real estate broker, sell it to a cash buyer, or you may qualify for a “Short Sale” even if you have already received a foreclosure notice. However, you must act quickly and select the right real estate professional, one well versed in this type of sale. Completing a short sale is a fairly lengthy process so you must have a minimum of 60 days remaining before the eviction date.