Facts Every Foreclosure Victim Should Be Aware Of

By Author: Nick Adama
Total Articles: 197
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In the wake of Hurricanes Katrina, Rita, and Wilma in 2005, many agencies of the federal government imposed foreclosure moratoriums, including HUD, the VA, the Rural Housing Service, Fannie Mae, and Freddie Mac. New foreclosures were held off on, while foreclosures already going through the court system were postponed in an attempt to encourage servicers and lenders to work more closely with homeowners to help them save their homes. After all, a foreclosed home is good business for servicers, but an abandoned, destroyed, flood-damaged home is an opportunity to negotiate loan modifications and other solutions.

In the event of a disaster, Fannie Mae requires foreclosing servicing companies to reconsider evicting homeowners, especially if there is a lack of available housing. If the mortgage servicer and its attorneys decide not to proceed with an eviction, they may charge the former owners rent on a month-to-month basis, depending on what the borrowers can afford.

Having a full foreclosure or a bankruptcy on one's credit report is typically fatal to new mortgage applications for the first two years after the incident. ...
... A deed in lieu of foreclosure is viewed as just one small step below having a full foreclosure. Thus, the main benefit of the deed in lieu is to transfer the property sooner and get through the two-year period where it will be almost impossible to obtain a new mortgage.

If a mortgage is held by the federal government or insured or guaranteed by it, certain regulations determine how servicing companies should proceed with foreclosure. If these procedures are not followed, homeowners may have more defenses to foreclosure, including a full legal defense based on the servicer's failure to offer assistance or service a loan properly.

Although many attorneys and homeowners feel that the power of sale clause used in deeds of trust in nonjudicial foreclosure states deprive homeowners of due process, courts feel differently. They have ruled that, because the agreement is between two private parties (the bank and the borrowers), there is no due process protection. Only if there was a state actor would due process protections be granted to homeowners. Of course, banks are given a protected monopoly by the government to create money (legal tender) based on nothing (fractional reserve banking), which would usually be a state action -- but this is conveniently ignored.

The following is a list of protections homeowners have if their loan is insured by the Federal Housing Administration (FHA). Lenders must meet these requirements to begin foreclosure:

1. Three monthly payments are due
2. Foreclosure is not allowed if the default is based on a missed escrow payment that is due in a lump sum
3. Notice of default must be sent to the borrowers before the second month of delinquent payments
4. Before the third payment is missed, the lender must make an effort to arrange a face-to-face meeting with the borrowers
5. In many situations, the lender must accept partial payments if the homeowners are able to make them

For mortgage insured by HUD, there are two types of special forbearance plan. The first type must include a repayment plan that lasts for at least four months after payments have been suspended for a period of time. During the period of suspended payments, homeowners may be required to make partial payments. The second type of forbearance allows for a short-term repayment plan to be combined with a partial claim or a loan modification.

A partial claim is not widely known and is rarely used by homeowners to stop foreclosure on their properties, and for good reason. Look at the list of requirements for this government assistance:

1. Have a mortgage insured by HUD
2. Be at least four months behind in payments
3. Total arrears must add up to less than twelve months of payments
4. Must be able to make full monthly payments
5. Loan modification or special forbearance will not solve the problem

With HUD loans, a partial claim may be used by homeowners who have filed for bankruptcy to stop foreclosure (either Chapter 7 or Chapter 13). However, a mortgage modification may not be used with a partial claim.

One of the reasons that HUD distorts the housing market is through its payments to homeowners and lenders for performing certain tasks related to preventing foreclosure. For instance, pre-foreclosure sales can net homeowners up to $1,000; deed in lieu of foreclosure will net $2,000 for borrowers. Lenders can receive $100 for each special forbearance, $750 for loan modifications, $500 for partial claims, $1,000 for a pre-foreclosure sale, and $250 for a deed in lieu.

When preparing a workout application, families that have one parent at home taking care of children need to explain this to lenders who may look unfavorably on the fact that both parents are not working. Comparing costs of childcare to income from a potential job should be done to show the mortgage company that staying at home is more cost effective.
Nick publishes articles designed to help borrowers understand how various methods to avoid foreclosure operate, and which may be most effective for them. He publishes about such topics as how to interview the right personal bankruptcy lawyer, the dangers of a deficiency judgment after foreclosure, how to delay a sheriff auction, and more. Visit his site if you need assistance in understanding how foreclosure and bankruptcy work, and what other alternatives you should consider when the bank is trying to steal your home: http://www.mypersonalbankruptcylawyer.com/