• Mortgage Foreclosure
  
  
• Municipal Tax Lien (redemption or foreclosure)
  
  
• Precursor to Options and Alternatives

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Mortgage Foreclosure is the legal process used to terminate your ownership of real estate that is collateral for a debt, based on a mortgage or deed of trust. There are a variety of laws governing the rights of homeowners and lenders. In some states, foreclosure involves a court proceeding (judicial foreclosure) while in others foreclosure occurs by creditor actions alone (non-judical).

It is important to know that foreclosure laws and customs differ from state to state. In every state, some notice of pending forecloure is required. The type, amount, and timing of required notices varies. Notification may include NOTICE OF DEFAULT, NOTICE OF ACCELERATION, AND COURT NOTICES.

In a judicial foreclosure state (such as New Jersey) the foreclosure process may begin after several monthly mortgage loan payments are missed, and the Lender prepares to file a complaint of foreclosure in the Superior Court.

 

• The Single Family Mortgage Foreclosure Act
  
  
• Understanding "The NJ Fair Foreclosure Act" of 1994
  

* Complete article to follow
* 10 ways to stop foreclosure


Steps That Advocates Can Take
To Help Prevent Foreclosure

Foreclosure rates have increased nationally by more than 200% since 1980 and show no signs of abatement. More than 600,000 homes were foreclosed in 1989.

Older homeowners fall behind on their mortgages for many reasons: sudden decreases in income due to the loss of a spouse; poor financial management which contributes to nonpayment of utility bills, service shutoffs and liens against the property; failure to perform necessary repairs and maintenance which make the property uninhabitable; second mortgage scams which make impossible demands on the homeowner's limited resources.

All of these contributing factors can be addressed by skilled advocates -- if homeowners turn to them in time. This issue of Consumer Concerns for Older Americans examines some of the measures that legal and non-legal advocates for the elderly can take to defend homeowners at risk of foreclosure.

How Foreclosures Work


Foreclosure procedures vary from state to state. The procedures are established by state statutes, by case law, and by local practice. In about half of the states, foreclosures are court proceedings. First the creditor files a suit in a court located near the property.

Unless the homeowner files an answer successfully contesting the foreclosure, a judgement is entered for the creditor. The home is then sold under court supervision.

Other states have "non-judicial foreclosures." Creditors foreclose by simply advertising the home for sale, using a legal notice in a newspaper.
If homeowners want to contest this type of foreclosure, they must file a lawsuit and ask the court to stop the sale. Sometimes if the homeowner wants the court to stop the foreclosure, the homeowner must file a bond to protect the creditor. Unless the homeowner initiates a court proceeding, there is no judicial involvement in such a foreclosure.

Some states allow both types of foreclosure, judicial and non-judicial. Practicality and local custom usually dictate a creditor's choice of one type over the other.

Consumer Strategies When Foreclosure is Threatened


When a homeowner first becomes worried about meeting mortgage payments, advocates can recommend that a series of steps be taken to reduce the risk of foreclosure:

Get Legal Advice


Because foreclosure is a harsh legal process, homeowners threatened with foreclosure should immediately obtain legal help. Possible sources of legal help are the neighborhood legal services office, a bar association panel of pro bono attorneys, or a program providing legal assistance for the elderly. A competent attorney can determine whether there are legal defenses to a foreclosure. Too often, homeowners either postpone consulting a lawyer until after the time to assert their legal rights has passed, or walk away from their homes in frustration, leaving themselves without any equity and vulnerable to deficiency claims. For each foreclosure situation, a counselor or lawyer must carefully evaluate the homeowners' objectives and interests. Homeowners should, however, avoid "quick Fix" attorneys who may advertise or solicit through the mail from published foreclosure lists. Many times these practitioners will push the homeowner to file a bankruptcy prematurely. A bankruptcy may be necessary at some point. But, as with many things, proper timing may be critical.


Keep Current on Home Payments


The consumer should not pay credit card debts, doctor bills or other low priority debts ahead of home mortgage payments. Skipping payments on low priority debts for several months will have little or no bad consequences, but skip one or two home mortgage payments, and the consumer risks losing the home. Sometimes the default can usually be cured by simply paying the amount in arrears.

Apply for Income Maintenance, Tax Abatement and Public Assistance Programs


Benefits provided by government and non-profit agencies are a key source of assistance for individuals in financial distress. These resources can help older homeowners free their income for home payments. Benefit programs to apply for can include fuel assistance and weatherization assistance, food stamps and emergency home repair programs. Most municipalities also offer property tax abatements for reasons of age or hardship. For very low income homeowners, particularly those who are recently widowed, advocates should also determine the homeowner's eligibility for Supplemental Security Income. The process of obtaining these benefits is often slow and difficult. When necessary, shepherd individuals' applications through the bureaucratic maze, ensuring that application procedures are understood and that all documentation is properly assembled and delivered.


Negotiate a Temporary Delay in Payments

One of the most important strategies today for homeowners in financial trouble is to work out with the lender a temporary delay in payments or a period of reduced payments. More and more creditors are realizing that foreclosure is a losing proposition for the lender, and that they are better off keeping the consumer in the home making whatever payments the household can afford. Some forms of forbearance that lenders are increasing likely to accept include:


Skipping one payment (that is, letting the consumer remain "30 days down");

Extending the grace period for making late payments;

Skipping two to six payments for a year or two; or

Accepting reduced payments for anywhere from one to eighteen months.


It is important to contact the lender early, as soon as the homeowner begins experiencing financial difficulties. Just calling the lender on the telephone is a good way to start. Immediately follow up all phone calls with a letter to the lender confirming what has been discussed. The homeowner should keep a copy of the letter. The homeowner should continue to press the lender for a response to the offer, and not simply sit back awaiting a response.


Negotiate a Permanent Loan Restructuring


Although a temporary forbearance is easier to negotiate, for some older homeowners the financial problem is more long term. To keep the house they will have to have lower mortgage payments not just for a period of months, but perhaps as long as the mortgage has to run. And lenders are beginning to realize that permanently receiving less interest may be a better solution than foreclosing on the home.

Where a home's likely sale price at foreclosure is less than the mortgage, the lender is usually better off keeping the consumer in the home and receiving lower mortgage payments. Moreover, more and more consumers are utilizing their rights in bankruptcy, and lenders are discovering that they are worse off if the consumer files bankruptcy than if they negotiate a new repayment plan. Consequently, homeowners report success in achieving the following types of negotiated mortgage restructuring:


Capitalizing delinquent payments on top of the present principal balance, allowing the consumer to repay these delinquent payments slowly over the whole term of the loan;

Giving the homeowner up to four years to repay, in installments, delinquent amounts, with no interest accruing on these back due amounts;

Lowering the interest rate for a certain number of years or even for the remaining term of the loan, thus reducing monthly payments without lengthening the term of the mortgage;

Lengthening the term of the loan, thus reducing monthly payments (but increasing the total interest payments over the term of the loan);

Substituting some other more valuable property or asset for the home as collateral for the mortgage, thus putting this substitute property at risk of foreclosure, but protecting the home; or

Some combination of the above forms of loan restructuring, such as allowing back due payments to be paid gradually, lengthening the term of the loan, and lowering interest.


Refinance the Home Debt


If the home was financed at one of the high interest rates that prevailed during the early 1980s, refinancing at a lower interest rate and/or with a longer payment period can greatly reduce monthly payments and bring them within reach. Moreover, refinancing a low interest first mortgage and high interest second mortgage into a low interest first mortgage can also reduce payments. Advocates should keep in mind, however, that many refinancing schemes are frauds. Even legitimate refinancing options that look like an improvement on closer inspection are far more costly than the existing mortgage. The major disadvantages to refinancing residential debts are the increased finance charges that result from extending the repayment period, the possibility of having to pay points, the additional closing costs, and prepayment penalties on the old mortgages. The feasibility of refinancing depends on whether the homeowner can obtain a loan at a reasonable rate, usually from a savings bank, a commercial bank, a credit union, or a legitimate mortgage company. Most finance companies and certain mortgage companies do not make residential loans at reasonable rates and terms.

When foreclosure is threatened, a homeowner may wish to contact a local realtor to obtain an appraisal of the home or even list the home for sale. Doing so provides the owner with information about the home's marketability and its likely sale price, without necessarily obligating the owner to sell. Most homeowners do not want to give up their home, and but sometimes no other solution exists. Selling the house may be painful, but it is always a better solution than letting a bank sell the house. If they find a buyer, homeowners may sell their homes privately before a foreclosure sale takes place.


Consider Filing Bankruptcy


Homeowners who are about to lose their homes should carefully consider filing a petition in bankruptcy. This can stop the foreclosure process and allow them time to regroup and try to work out a plan to keep the home. Bankruptcy may also help them cure past defaults and make future payments. However, the bankruptcy option is complicated and it is a good idea to seek professional assistance from an attorney specializing in bankruptcy.


Deed in Lieu of Foreclosure


Homeowners often will be tempted to turn over their deed to the creditor instead of fighting the foreclosure. This is generally a good idea only if the borrower will receive something from the creditor in return for saving it the trouble of foreclosing. For example, if the home's value exceeds the amount of the indebtedness, the homeowner may want to ask the creditor to agree not to seek further collection remedies. By turning over the deed to the mortgage holder, the consumer may forfeit any right to equity in the home. Similarly, the consumer may have valid claims or defenses against the creditor that would be lost by turning over the deed. If the consumer does offer the creditor a deed in lieu of foreclosure, make sure that there is a written agreement giving them sufficient time to vacate the premises in order to find alternative housing and move in an orderly fashion.


Q. What exactly is foreclosure, and when does it start?

A. The foreclosure process differs from state to state. Whenever you ask about mortgage foreclosure, it's important to know the particular laws and customs that apply. Generally, in a judicial proceeding (judicial vs. nonjudicial) after a Borrower defaults to the terms and conditions of their mortgage loan agreement, foreclosure is the legal means that the mortgage lender may use to force the repayment of the debt you incur when you borrow money with a loan secured by a mortgage on your home. Once a lender declares that your loan is in default, the loan may be accelerated (which means that the entire balance of the loan must be repaid immediately, usually within 30 days). In some states, befre the lender can initiate foreclosure, the law requires that the lender issue the borrower a NOTICE OF INTENT TO FORECLOSE, giving the borrower a prescribed period of time to cure the default. If the borrower is unable to cure the default, and loan isn't repaid within 30 days, foreclosure is initiated when the lender directs their attorney to file a lawsuit.

Q. Does foreclosure mean that we will lose our home?

A. Possibly, but not necessarily. Most people who are forced to leave their homes probably didn't understand the foreclosure process, they probably didn't know about their options, and they were probably too afraid, too embarrassed, or didn't know where to get the help that they needed.

History & Purpose

Right to Reinstate

Notice Periods

Optional Sale Procedure

Sheriff's Sales

Municipal Tax Lien (redemption or foreclosure)

in foreclosure, the municipal tax lien is superior to all other liens (except Federal liens)
including first and second mortgages.

Workout: This term covers a variety of negotiated agreements you might arrange with your Lender to address a debt that you are having trouble paying. A workout is an alternative action to prevent a foreclosure for the mutual benefit of the Borrower, and the Lender. A workout may include a loan modification, a short sale, a deed-in-lieu, and various forms of forbearance. There may be several parties involved in a workout including the mortgage holder, a mortgage loan servicer, a foreclosure attorney, and possibly a mortgage insuror. S.P.O.C.H. would help you to determine who holds your mortgage, who is servicing the mortgage loan, and if there is (PMI) mortgage insurance. If you are paying for private mortgage insurance, it's a good idea to keep them informed with respect to your attempted workout. (article on workouts with PMI company)

Forbearance: Sometimes, Lenders may be convinced that it is better for them to accept what you can afford to pay them (temporarily or long term) than it would be to foreclose on your home. A 'forbearance' is the (lender's)act of refraining from taking further legal action despite the fact a default has occured. S.P.O.C.H. thinks it's best to seek a forbearance as early as possible, that it's easier to negotiate a workout before you get too far behind in payments.

Financial Hardship: A Borrower's inability to make monthly payment in accordance to the terms of the mortgage note due to an involuntary reduction of income or an unavoidable increase of expenses. Most, if not all, mortgage loan servicers require documented proof of the existence of a financial hardship before they will consider granting relief measures. S.P.O.C.H. will help financially distressd Borrowers prepare and draft a Letter of Hardship used in conjunction with a request for a forbearance plan.

Deed-in-Lieu (DIL): A DIL is an agreement to give the mortaged property to a lender as an alternative to foreclosure. If you simply can't afford to keep the property, you can offer the deed for the property to the Lender instead of foreclosure and agree that you would not contest/challenge a foreclosure, IF the Lender agrees to allow you to stay in the property without making payments for a set period of time (a few weeks, or 6 months to a year). If you give a DIL, be sure that you have a written agreement with the Lender stating that you are allowed to remain in the property rent free (or some agreed upon rent) for the agreed upon term. Once you have negotiated a DIL, it would be worth the cost of an attorney to prepare and/or review this Agreement. The textbook definition of DIL: The voluntary conveyance of the property from the borrower to the lender in lieu of foreclosure. The advantage for the lender is the cost of acquisition is less than a foreclosure. The advantage to the borrower is they avoid foreclosure and potential deficiency judgment.

Deficiency: If proceeds from a forced sale (Sheriff's Sale/Trustee Sale)are insufficient to pay the entire debt, the Borrower may still owe the Lender because the home sold for less than the amount of the debt. In the case of a pre-foreclosure sale, if the Lender agrees to accept a amount less than they are due (short or compromised sale) and forgive the shortfall (difference between what was owed and proceeds from sale) the Seller may still face an exposure to an income tax liability. If you want to sell your home to avoid foreclosure, but owe more on your mortgage than your home is worth, contact TheShortSalePro.

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