All About Foreclosures.

Before taking any concrete action, get in touch with a lawyer or counsellor. The following is meant to give you a quick rundown about foreclosed homes, financial institutions, and your options with regard to your mortgage lender.

What is a foreclosure?

When a homeowner falls behind in making mortgage payments, the lender can begin the foreclosure process against them. Foreclosure is a legal process where the home is sold to pay a debt or if it does not sell, a lien on the property is removed and they no longer owe any debt on the house. The foreclosure process exists as a last resort when you owe money to the mortgage lender.

What is the Difference Between Short Sale, Pre-Foreclosure, and Foreclosure Properties?

Some properties are listed in the MLS (Multiple Listing System) as either pre-foreclosure or short sale. This means that the homeowner has fallen behind on their payments to the mortgage lender and they are trying to sell their property in order to pay off some of their debt. Short sales are when buyers come along and can purchase the property while agreeing to pay a portion of the amount which is still owed by the homeowner. In a pre-foreclosure sale, the house has been listed in the MLS system but there have been no offers from buyers who will settle for paying something less than what is owed to the mortgage lender.

In foreclosure sales, when a bank feels that they are not likely to get any money from selling the property, they foreclose on the home. This means that the lender takes possession of the property and tries to find a buyer who will pay what is owed to them by the homeowner.

Buyers tend to be wary of homes that have been foreclosed because of what the value of the home might be in the housing market. It means that the foreclosed home might have suffered from personal finance woes from the previous owners that may still affect the house. If the house is sold as-is, real estate agents may recommend thorough inspections during the buying process of the foreclosed property.

Who owns foreclosed properties?

In most cases, the bank that services your mortgage wins ownership of the house in foreclosure.

How does a home get foreclosed?

There are several conditions under which a lender files for foreclosure:

• Your house is "underwater," meaning you owe more than it's worth. This can occur when the home value has fallen or you took out an expensive refinance.

• You default on the loan (you miss a mortgage payment). How many times you can miss a payment, or how far behind you must be before foreclosure proceedings begin varies from lender to lender. Some lenders may refuse to work with homeowners and will initiate foreclosure proceedings as soon as the first missed payment; others might try and reschedule missed payments and let you enter into a repayment plan. For this reason, it's important to understand more than the typical mortgage basics.

• Your mortgage loan is "upside down," meaning you owe more than it's worth and can't make the minimum payment on your loan (the value of the house minus the amount owed).

• You get behind on property taxes or home insurance. Even if you're up-to-date on your mortgage, if you fall behind on property taxes or home insurance, some states allow the lender to foreclose. Unpaid property taxes can haunt you for a long time.

If my house is foreclosed, what happens next?

After the foreclosure filing, most lenders will take steps to sell the foreclosed properties. Banks will likely start advertising its availability for sale soon post-foreclosure. When a lender attempts to sell foreclosed homes, it takes the legal title of the home and in this case, becomes the homeowner.

In most cases, you will not be able to remain in your home after a foreclosure. You must move out of the house within a specific number of days (typically 20) after receiving a notice from the bank informing you that it's going to start selling the home either as a short sale property or another way to win back the market value of the house.

In the case of a deficiency judgment, you may also be liable to pay additional fees to the lender based on the value of the foreclosed home.

What if I think my lender is trying to foreclose inappropriately?

If you think your lender is trying to proceed with a foreclosure, even though you believe it's not justified, you should contact a housing counsellor right away.

Many homeowners are eligible for foreclosure relief through programs offered by the federal government or their province. If you're determined to be eligible for one of these programs, it will stop the proceedings and allow you to stay in your home.

You should act as soon or before you get a notice of default for any piece of real estate owned or mortgaged property. A foreclosed property is also a stain on your credit score which you want to avoid, especially when you're dealing with judicial foreclosures in your province's laws.

How can I avoid foreclosure?

The best way to avoid foreclosure is to contact your lender as soon as you are behind on mortgage payments, or even before.

Many lenders will help homeowners avoid foreclosure through an affordable repayment plan.

Basically, if you have financial challenges, get in touch with your lender to avoid past due payments. Foreclosure action affects credit scores and may compound your financial difficulties. The quicker a borrower repays the missed payments when facing foreclosure, the better it is.

What are my options if I'm facing foreclosure?

If you're thinking of trying to stop the bank from taking your house during a foreclosure, there are certain things you need to know:

• Foreclosure is not a quick and easy process. The foreclosure process varies from state to state; however, it can take months or even years.
• Even if you file for bankruptcy – which stops foreclosure proceedings – your home will still be at risk of being foreclosed on if the lender successfully challenges the bankruptcy.
• You will need to act quickly if you want to try and stop foreclosure proceedings via bankruptcy. The sooner you file, the better your chance of success. If you wait until just before the foreclosure sale date, it may be too late.

What is the difference between a judicial foreclosure and a "power of sale"?

A judicial foreclosure process is the more common method of foreclosure; however, not all provinces use this method.

In Ontario, for example, the "Power of Sale" process is different from the judicial foreclosure process common in British Columbia.

One of the key differences is that you can receive some of the excess profits from a sale in the power of sale process whereas judicial foreclosures don't allow you to retain anything from the sale of the house.

What is "Mortgage modification?"

A mortgage modification is when an existing loan is permanently changed to make it more affordable to the borrower. Mortgage modifications usually involve reducing interest rates and monthly payment amounts.

Sometimes, a lender will agree to change the terms of the loan if you're facing imminent foreclosure. It can also help to get a modification on your mortgage if you want to sell your house and it's empty, or if you've fallen into severe financial hardship following a job loss or some other setback.

These are all things that you should think of when taking on a home loan, foreclosed homes are rare but with some careful planning you can avoid finding yourself in that situation. It's best to find yourself thinking ahead of financial problems so that they do not affect your credit reports in the future or require you to pay expensive attorney fees while dealing with foreclosure costs.

How do lenders modify loans?

Before modifying a mortgage, lenders will evaluate the borrower to determine if he or she qualifies for a modification.

If you can't afford your house, it's unlikely that lenders will grant you extra time to try and save it. You should still contact lenders as soon as possible to let them know that you're having trouble making ends meet.

The first step in applying for a modification to home loans is to contact your lender. Most of the time, lenders are willing to work with you on a new repayment plan that's affordable. Many times, this means reducing the interest rate on the loan or extending the number of years for repayment.

If your lender agrees to give you a modification but you still can't afford your house, you have two options:

• Sell the house. The lender may agree to a short sale, which is when you sell your home for less than what you owe on your mortgage. If lenders approve a short sale, it will usually mean that they'll forgive any outstanding loan balance that's left after the sale. You should try and get this agreement in writing before pursuing a short sale.
• If lenders refuse to forgive any unpaid mortgage balance, you may have to pursue a deed-in-lieu of foreclosure, which is when you give the home back to the lender and agree never to live there again. You should also get this agreement in writing from your lender if it's an option.

If you don't qualify for a modification, bankruptcy may be an option. Filing for Personal Bankruptcy or a Consumer Proposal can stop foreclosure proceedings and allow homeowners to stay in their homes while they repay the loan over time.

If your lender denies your application for a modification, ask why. Lenders are required by law to provide borrowers with a clear and specific reason for the disapproval if they deny your application. If you still think you can afford to pay your mortgage, see if the lender is willing to work with you again in the future.

How do I apply for a loan modification?

If you know that you can't afford your home anymore, it's best to get in touch with your lender as soon as possible. The following are three ways you can try and get in touch with your lender:

Contact them by phone. There are usually several numbers on the back of your mortgage statement; however, if that number is no longer in service, you should look up how to contact your loan servicer directly by visiting the Federal Housing Administration's website.

Try and contact them on social media. Many lenders have profiles on Facebook, Twitter, Google+, Pinterest and other websites. You may find it helpful to share your personal story or tell lenders about how their actions are affecting you and your community.

Once you start talking to your lender, they may ask you for additional documentation.

They may require proof of living expenses or income from recent tax returns. If these items are not available, lenders have been known to accept letters from clergy members who can vouch for the borrower's situation or affidavits from friends and family members who have witnessed the borrower struggling to make ends meet.

Your lender will make a decision based on your overall financial situation. Lenders use something called the "waterfall method" to determine whether you're eligible for a loan modification. The waterfall starts with your ability to pay and then goes down from there:

• If you can afford your current monthly payment, they'll deny the application.
• If you can't afford your current monthly payment, they'll lower it to what you can afford.
• If you still can't afford your reduced monthly payment, they'll explore other options like extending the term of the loan or reducing the interest rate.
• If none of these options are available to you, they may be forced to deny your application.

What do I need to bring when applying for a loan modification?

It's important that you have the following information readily available when you contact your lender:

• Your current income source and monthly expenses. If you don't have this information, it can be difficult for your lender to determine whether or not you should qualify for a loan modification.
• If you're a veteran, bring paperwork from the Veteran Affairs department that proves how much of a service-related disability you have. This can help you qualify for special programs designed to reduce your monthly payments or interest rates.
• If the lender has foreclosed on your home and taken ownership, make sure to bring any paperwork from the foreclosure proceedings. If you owned your home free and clear, be prepared to prove it to your lender with a deed or title.
• Bring all of these documents to an in-person meeting if your first contact is over the phone or through email. You can then ask for a date by which they'll respond to your request.
• If you've found a lender willing to work with you on loan modifications, always ask for written confirmation of the offer before leaving.

What are my next steps if my application is denied?

If your request for a loan modification is denied, you have several options:

• You can accept the denial and continue making payments as usual.
• You can request a loan forbearance. This means your lender will give you an additional month or two to catch up on payments before foreclosing.
• You can try and reapply for a different loan modification program with a different lender after making the necessary changes to your application materials.
• If none of these options are viable, you have the right to request a free foreclosure consultation from your lender.

What if I can't afford my payment?

If you've already fallen behind on your payments, many lenders will be flexible when it comes to working with borrowers in this situation. You'll need to contact your lender immediately or visit them in person at their local branch. If you're having trouble making ends meet, lenders are required by law to work with you on affordable payment plans

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