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Foreclosure Myths and Facts: Despite what most people believe, Foreclosure of your home, business or vacation property doesn't happen to "Subprime" borrowers only. Market, business and employment changes can cause drastic effects on personal finances. With proper assistance the recovery process can be shortened and more importantly, your sanity preserved during the process.
 Myths:
MY CREDIT WILL BE RUINED: Yes, your credit rating will be affected by missed payments and more so by the foreclosure process. We have developed relationships with most lenders and servicing companies that allow some modification of the reporting done by your lender. Because we understand the importance of credit in today's world, we know the benefits of acknowledging the problem and working toward a solution in a timely manner. I'LL NEVER BE ABLE TO BUY A HOME AGAIN: Probably one of the most common misperceptions. We work with a number of lenders who specialize in credit repair and loans to persons looking to restore their credit rating. We also can negotiate "Owner Carry" financing on certain properties. THE BANK WILL KICK ME OUT OF MY HOUSE: The Foreclosure process is lengthy and with professional assistance and counseling, the process can be extended for many months. We've also successfully negotiated rental agreements between lender and borrower in certain cases. Again, prompt planning and knowing all your options is critical. Full Service, or "Do it Yourself"?
Diamond Business Solutions, LLC offers a full range of options to assist you during times of financial duress. For those whose time constraints and experience level don't allow, we can give you "hands on" assistance throughout the process. Obviously, time is a critical factor and each case has unique constraints. Our initial interview will help us determine your needs more accurately. We have an information product with budgets, market considerations, and planning worksheets that some homeowners have found very helpful when facing the foreclosure process. Either way, we can help! All of our counserlors come from accounting, legal and real estate backgrounds and are experienced in the foreclosure process and the options you have have available to you. Contact us today for more information. Make time your ally, not your enemy. The current Foreclosure process for the state of Colorado folows. We work in most other states also or can refer you to a professional in your area if needed. The Foreclosure Process-Colorado (Revised 01-01-08 Important Changes)
When your mortgage becomes delinquent, the lender must follow a strict process, which has changed, effective 01-01-08 to foreclose on your property. Each lender has its own guidelines but a range of 60-120 days delinquent payments will trigger the Foreclosure process. Contrary to popular belief, the lender rarely makes a profit from the foreclosure process. The average costs to a lender to foreclose, take possession, secure/repair, market and re-sell the property have averaged about 25% of the foreclosed loan amount. It is in both the lender’s and the borrower’s best interests to attempt an equitable restructuring of the debt prior to requesting a sale of the property by the Public Trustee of the County in which the property is located. Owners/Borrowers should consider all aspects (financial, emotional and market) of their current situation before committing to a course of action that may not be in their best interests. Consulting with Financial and Legal Professionals is always recommended.
1. Notice of Demand (NED) mailed (or Served by Sheriff) to the owner and published in local papers
• The Public Trustee’s Sale will be scheduled no sooner than 110 days, nor later than 125 days after the recording of the Notice of Demand (NED). The sale date range for agricultural property is 215-230 days. Remember; rural (1+ acres) doesn’t necessarily mean agricultural. Confirm with the County Assessor the actual designation of the property. An easy guideline is that a property with a metes and bounds legal description is more likely to be agricultural, whereas a lot and block legal description is likely to be residential regardless of land size or use.
• During the time of default, called the Cure period because the loan default is being cured or resolved, bringing the payments current or working out a solution with the bank will avert your home from being sold at the Trustee’s Sale. Some lenders are willing to enter into a Forbearance or loan modification during this period. If a modification of payments, term or other provisions is negotiated with the lender, the lender will notify the Public Trustee to cancel/withdraw the foreclosure sale. Any default of the new agreement requires the foreclosure process to be started over from the beginning.
• If the homeowner obtains a buyer, a “Short Sale” can be negotiated. This is where the lender takes less than the full amount due on the loan, for a complete payoff.
• Forbearance, loan modification and short sale may reduce the negative impact to your credit score as a Foreclosure Sale didn’t take place. This 110-125 (215-230 for Ag prop) day period is the most important time frame as Redemption of the property by the homeowner, after the Public Trustee’s Sale has been removed from the process.
2. Trustee Sale — Home is sold at auction
• Generally, the bank requesting the foreclosure buys the Trustee’s Certificate at sale. If the current market value is greater than the loan balance, an investor may buy the Trustee’s Certificate. The Trustee will send the money to the original lender and now the investor has “equitable title” until the end of the redemption period for junior lien holders, when they receive a Confirmation Deed to the property.
• In rare cases, a lender who holds the Trustees Certificate of Purchase is willing to negotiate a short sale and not take the property into their REO (Real Estate Owned) inventory. Worsening market conditions can make a lender less willing to own vacant property and be encouraged to take a reduced amount.
• If a second mortgage exists, the holder of the second mortgage can pay off/redeem the first mortgage to protect their interest in the property. Each junior lien (mortgage) holder has an additional 8 days after the sale to file his intent to redeem and an additional 5 days to pay the trustee the amount bid at the Public Sale
• Foreclosure Sale may appear on Borrower’s Credit Report
3. Redemption – No Owner/Borrower redemption allowed after sale date: effective 01-01-08
• Home owner/borrower is subject to eviction, but most foreclosure attorneys (who represent the lender during the foreclosure process) will work with the borrower, delaying eviction for 10-30 days after the redemption period. In some cases, the attorneys/lender may offer a Cash for Keys incentive for the borrower to vacate the property and leave the home in good condition.
• Bank will market and hopefully sell the property to another party.
• Foreclosure Default Judgment may be shown on default buyer’s credit report
• Owner may receive IRS Form 1099 at end of year as showing the difference between what he owed and what was received at auction as income subject to taxes. There is proposed legislation to remove this provision of the IRS code but as of 01-01-08, has not been passed into law. |
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