I’m heading for foreclosure – now what? by Adam Mack J.D.How It StartsI regularly work with clients facing foreclosure who are often frustrated, confused and who frequently feel they have been taken advantage of by the bank holding their mortgage. Then, to add to their frustration, I have to explain to them how they will likely continue paying for their house even after the bank takes the house away in a foreclosure. This happens because, when someone buys a house, they sign a mortgage and note to purchase a home and at that point the person is contractually bound. Under the terms of the agreement, the bank that originated the loan (or whoever the bank chooses to sell their interest in the loan to) is permitted to foreclose on the house in the event that the person who borrowed the money has defaulted on their payment. They can do this because the mortgage is a secured debt. In other words, the bank was willing to give the borrower money for the home because, under the mortgage and note, the borrower agreed to allow the Mortgagor to take the house back if the borrower did not pay the bank, thus making the bank more secure in its investment.The Bank Forecloses and the House Is Gone – Now What?One of the most frustrating aspects of losing your home is the fact that the bank will still be holding its hand out for money after the house is gone. How does this happen? This happens because you originally agreed to pay the bank a set amount of money. After the foreclosure, the house will be sold (usually at a sheriff’s sale). So, roughly speaking, the amount you will owe will be the remaining balance of what you originally agreed to pay less what the bank recovered through the sheriff’s sale. For example, lets say the mortgage on your house was $200,000, at the time the foreclosure took place you had paid your mortgage down to $185,000. Then at the sheriff’s sale someone bought your house for $120,000, then the deficiency is $65,000. And you will continue to be responsible to pay the deficiency even though the house is gone.If You Have Not Been Foreclosed On YetIf you have not been foreclosed on yet, you may be able to save your home through a loan modification or a Chapter 13 bankruptcy. However, once the foreclosure process has started, the clock is ticking. You must act quickly to save your home! Once a foreclosure petition is filed with the court and served on you, then you have a limited number of days to engage the bank in litigation or they will get a default judgement (which means they win the case because no one contested it). It is imperative that you act quickly to stop the foreclosure. If you wait to contact an attorney until just a couple of days before the deadline to answer the petition or just before a sheriff’s sale, the attorney’s ability to help and do a good job on your case will be limited.If Your Home Is Already ForeclosedBEFORE THE SHERIFF SALE: If the court has filed a final judgement in the foreclosure case, then it is not too late to try saving your house using a Chapter 13 bankruptcy plan. However, you are living on borrowed time at this point. If you think you may want to save your home at this stage, you must contact an attorney immediately! AFTER THE SHERIFF SALE: You may be able to get your house back if the redemption period has not passed yet, but this is a difficult thing to accomplish as it will almost always require a very large sum of money to redeem the house.
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