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Licensed in Minnesota and Wisconsin
“IMPORTANT NOTICE: Dunn and Brennan Realty is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.”
Q. What is a Foreclosure?
A. In simple terms: You have not been making the payments, and it is the action the bank financial institution can use to take the house. You borrowed money using your house as collateral with the agreement that if you could not pay it back, then the lender could take the house.
Q. Can the bank just come and kick me out of my house?
A. No. Sometimes people are told by the collectors, “Just leave the keys in the mailbox.” You still have time until the redemption period is up after the sheriff sale, and then the house is no longer yours.
Q. How long does the foreclosure process take?
A. From the time you miss your first payment to the sheriff sale it’s not uncommon for 5 months or more to pass. In most cases in Minnesota, you then have 6 months after the sheriff sale to either pay the mortgage in full or sell the home. It will also depend on your mortgage holder and how aggressively they pursue your case.
Q. Can you explain some of the steps of the foreclosure process?
1. Customer misses mortgage payment.
2. Late notice sent to homeowner by bank.
3. Customer misses additional payments.
4. Bank attempts in writing and by phone to contact homeowner and resolve situation (Collection Department).
5. No arrangements are agreed upon and homeowner continues to miss payments.
6. Bank issues demand for the payment under the note in full, based on the acceleration clause. Most mortgage notes contain language which is basically says if you fail to pay the bank under the terms of the note with monthly payments as promised they can accelerate the note, meaning that full amount is due on demand. For example, if your mortgage is $100,000 with payments of $1,000 per month you are only required to pay $1,000 per month unless, you miss these payments and the bank subsequently demands the balance based on this acceleration. Once this happens you legally owe the full balance of $100,000 plus back interest, plus late charges, plus legal fees all at once. You will find from this stage on the bank will not accept monthly payments. They will instead demand much more to reinstate the loan. Although I consider this step in the pre-foreclosure category, once demand has been made and the note has been accelerated, you should have contacted a foreclosure specialist, whom is an expert in dealing with these matters.
7. No payments or settlement arrangements are made and accepted by the bank.
Formal Legal Foreclosure Process:
1. Bank sends Notice of Intent to Foreclose.
2. Immediately following the notice, bank files action in the court system to foreclose.
3. Legal notices as required by law are published in local papers.
4. No payment or settlement arrangements are made with the lender.
5. Notice of waiting period expires.
6. Court issues order allowing the bank to foreclose on the property.
7. Legal notice of actual foreclosure sale published in local papers.
8. House is sold at sheriff sale to highest bidder.
9. Homeowner, in most cases, has 6 months to either pay the note in full or short sale the property.
Q. When should I be alarmed?
A. Most people are not alarmed until they receive a notice of default (or notice of intent). At this point you should be very alarmed! You should already have a foreclosure specialist helping you to protect your position at this point.
Q. When in the foreclosure process should I move out of my house?
A. You don’t move out. Doing this gives up the majority of your rights. Stay in your house. What you need is advice and counsel. Knowing all of your options will give you power, and having a plan which you can see is effective and works, will give you peace of mind.
Q. Once the foreclosure process starts is there anything I can do to avoid it?
A. Yes. If working from your first late payment, there are at least 10 or 20 different ways to resolve the situation. The longer you wait, however, the more some of these options will become unavailable.
Q. I am receiving a lot of mail from people that claim they can help me, where are they getting my address?
A. Due to the legal nature of the foreclosure process your name and address may be part of public information offered through the court system, and ultimately published in certain journals and publications.
Q. What kind of people sends these letters and can they really help me?
A. Many groups of people try to contact homeowners in foreclosure:
Real Estate Brokers/Agents: Some agents just want to list your house on the local MLS, with the hope to find a buyer and to get a short sale approved. The real estate companies, brokers and agents that we work with are properly trained in the specialty area of short sales and assisting homeowners avoid foreclosure.
Mortgage Brokers: If there is enough equity in your home, they can help you to refinance and stop the foreclosure by paying off your current mortgage in full. This solution often works well, but you must be careful because the interest rate and closing costs on these types of loans can be high.
Investors: Some are ethical and some are un-ethical
Chapter 13 Attorneys: If you have the financial ability to complete the chapter 13 plan and this is also a viable way to save the house. Be aware that many of these attorneys will be more than happy to file a chapter 13 for you whether it is the best option or not. It is my personal feeling that this should be an option as a last resort unless your personal circumstances indicate this as the best solution for you. Keep away from lawyers running “bankruptcy mills” as I call them. These firms may let a paralegal handle your entire case, never really getting to know your situation or giving you the personal attention you need.
Crooks and Con Artists: I include in this group those whom will take your money with promises to keep the house and provide no services. In the worst cases, I have heard of groups that will take the title to your home, force you to pay them rent with the promise that they can save your home. The result is they either save your home keeping any equity for them or in the alternative, collect rent from you until the home is sold. Furthermore, since you would no longer own your home, chapter 13 would be lost as an option.
Q. How will I know which is the best option for me?
A. This is based on individual circumstances. The response to this question will depend upon your assets, liabilities, income, expenses and the underlying reason why the house is in foreclosure. The best solution will also depend upon the type of mortgage you have and where in the foreclosure process you are when you make a decision to save the house.
Q. From your experience how do you find that most of these cases are settled?
A. Our latest statistics indicate the following: Approximately 5% of clients refinance, approximately 30% of clients file a chapter 13 but still lose their house, approximately 10% reinstate their existing mortgage and overall 90% are unable to save their house, or use a short sale to avoid foreclosure.
Q. What happens to the money paid by the new buyer?
A. Monies will be distributed in order of priority. First priority will be real estate taxes. If monies are available after taxes they will go to the first mortgage, then the second mortgage, third mortgage, and etc. The next monies will go to any lien holders or attaching creditors. This process will continue until all liens and encumbrances on the property are paid. If by some chance there is still money left over it goes to the previous homeowner.
Q. What happens at the actual sheriff sale?
A. Any given sale may be different and overall it goes as follows:
The auctioneer will read various legal notices and legal descriptions of the property.
The auctioneer then begins to take bids on the property.
If the auctioneer has not already pre-qualified bidders by asking for their deposit checks, when a bid is made by a buyer the auctioneer will ask for the deposit check. For most residential auctions this amount will be $5,000.
The auctioneer will solicit bids for higher amounts. Depending on the auction, increments will be set by the auctioneer. Examples of this would be $100, $500, or $1,000. This process will continue until it has become clear to the auctioneer that the high price has been reached.
The auctioneer will announce the standard “going once, going twice, going three times, sold!” and the auction is concluded.
The new buyer and the mortgage holder will draw up foreclosure deeds and purchase papers.
Q. What happens if no one at the auction bids an amount high enough to cover my debt?
A. If the mortgage was $150,000 and the high bid at the auction was $100,000 the $50,000 balance would be called a deficiency. Under most loans, in most states, you would still be responsible for the $50,000, as an unsecured debt. The bank would have legal rights, which are roughly the same as what would exist on a credit card debt, to pursue you. Most banks will bid on the property for the amount that is owed. If there are no higher bids than that made by the bank, the property goes to the bank and the bank takes it in as Real Estate Owned (REO). The banks will do this to protect their interest and this allows them to keep the property, which will hold its value, in lieu of their mortgage payments.
Q. What is the difference between a foreclosure and a sheriff’s sale?
A. Foreclosure is the entire process by which a mortgage holder takes the property back pledged as collateral on the loan. The sheriff’s sale is held to sell the foreclosed property for the highest price possible in order to satisfy the amount owed on the mortgage. The foreclosure process is not complete until the sheriff’s sale and she sheriff’s deed conveys the property to the winning bidder.
Q. Will I be taxed on the short sale?
A. The Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07. Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure was potentially taxable income to the borrower. This was the subject of much media attention and led to many questions about tax implications. The new law, in most cases (consult a real estate attorney or tax accountant for your situation), temporarily waives these taxes for debt forgiven (as high as 35%) from beginning of 2007 to the end of 2012.