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Michael Seaton's Blog

By Michael Seaton | Agent in Half Moon Bay, CA

What is a Foreclosure?

In today’s current environment you have numerous Foreclosure alternatives available and letting your home go into Foreclosure should ultimately be your last choice. It is important to become familiar with the details of your specific financial situation and seek help through government websites, your lender and housing counselors. These often contain the most up to date and relevant information as programs continually change.

Some of the below Foreclosure alternatives may be available to you; however it is important that you understand the details behind your specific financial situation.

Foreclosure Information:


What is a foreclosure?

Foreclosure is a legal proceeding in which your mortgagee, or other lien holder, obtains a court order to take possession of your home. Once the process is complete, the lender will often sell the property and keep the proceeds to pay off the remaining mortgage and any legal costs. In general there are many stages to the foreclosure process all of which begin during the pre-lien phase once a borrower is 30 days, or longer, late with their payment. Once a borrower is 30 days late on a payment lenders will take action usually by writing a payment demand letter to try and threaten a borrower into reinstatement by paying the amount owed plus penalties in full. If attempts in collecting the amount owed are unsuccessful, and the borrower does not delay the process by working with the lender to attempt a (Short Sale, Loan Modification, Deed-In-Lieu etc.) the bank will file a NOD (notice of default) with the county recorder’s office. These NOD’s are public record and recently filed NOD’s can be viewed at the county court house. After the NOD has been filed a lender will initiate a Notice of Sale complying with each states laws. The notice of sale will spell out the details of the Trustee sale, which is the court steps auction in which the lender will attempt to sell the property. If the lender is unsuccessful in selling the property on the court steps, the property will become banked owned and held on the lenders books until it is listed or otherwise disposed of.

Why would anyone want to allow their home go into foreclosure?

Foreclosure should always be a last resort option; as your home will ultimately be sold through foreclosure despite your best efforts at attempting other loan workout solutions. Therefore, even if you are unsuccessful in attempting a loan modification, refinance or short sale the property will ultimately be foreclosed on anyways. In this case even attempting to save your home may buy you extra time by allowing you to stay in your home a few extra months payment free. The process of foreclosure can be very difficult, embarrassing, and stressful. Furthermore, foreclosure will have the longest and most devastating effect on your credit. Even after a foreclosure occurs, you may still owe your lender money which they may aggressively try and collect through the use of debt collection agencies. In many cases the only reason home owners allow their homes go into foreclosure is that they don’t know all of their available options or they want to live payment free until they are legally forced out. This is becoming an increasingly common phenomenon as peopled faced with foreclosure will pull out all stops to delay the process, realizing that while foreclosure is eminent, living 12-18 months payment free may allow them the opportunity to get back on their feet prior to losing title their home and being forced out through the eviction process. After foreclosure occurs banks may also offer Cash For Keys (CFC) which is essentially a check for anywhere from 1,500-8,000  to convince you to leave the property and its current condition.

What happens after Foreclosure?

After the trustee sale occurs and the lender takes back legal title to the property a seller in theory looses their previously held property rights. While states have differing laws as to reinstatement rules, and the amount of time a borrower may purchase back a property after auction varies depending on the jurisdiction of the property. Generally speaking a lender will move forward to vacate the property. Whether there are the actual home owners themselves or bystander tenants living in the property, a lender will try every attempt to get them to leave. However, if a home owner or tenant is uncooperative in leaving, there are humane reasons requiring a specific eviction process to be handled.  Each state and municipality provide general laws for  how the post-foreclosure eviction should be handled, and in some cases the process can take 6+ months if a tenant/home owner is uncooperative. After foreclosure occurs banks may also offer Cash For Keys (CFC) which is essentially a check for anywhere from 1,500-8,000  to convince you to leave the property and its current condition.

What is Cash for Keys?

A cash for keys negotiation is an offer in which a lender may make to a homeowner, tenant or other party staying at the property to try and entice the residing party with a cash payment (Money Order/Check) in exchange for vacating the property and leaving it in “As-Is” condition. The process usually begins when a representative of the lender visits the property and realizes that people are still living inside after foreclosure and possession has occurred. The representative is usually a real estate agent or asset manager trying to sell the foreclosed asset (REO) for the bank. Generally they would earn a commission on the sales price, and have an incentive to make a positive impression on the lender. In many cases the representative may try and get potential previous owners or tenants to move out by making verbal threats or writing letters. However, once it is clear that cooperation is difficult they will make notes in their system to alert the lender of the potential issue. Each lender has different guidelines based upon how much they will offer, and whether they will negotiate higher payments. Many have customary practices they follow depending on the area in which a specific property may be located in. However, once an amount is determined a date will typically be set a few weeks (2-6) later in which the keys must be returned and the property must be delivered in “As-Is” condition in order to receive payment for cooperation. The Tenant must then move out and deliver possession of the property in return for being handed a check. From the perspective of the lender the main advantage of offering cash for keys is that it gets people out of the house quickly. Equally important is that the house is often left in better condition than it would be in the event that a long and drawn out eviction process is required. Nevertheless, it is imperative that potential “cash For keys” recipients be aware that a an offer is a last resort since once the final paperwork is signed and the payment is made, there will typically be little recourse.

What affect will a foreclosure have on my credit score?

Foreclosure will have the longest and most devastating effect on your credit compared to your alternative options and is one of the most credit-damaging events that can ever appear in your credit history outside of bankruptcy. A foreclosure may stay on your credit report for 7-10 years, and is some cases can be obtained through court records for up to 20 years. Not only will you be required to pay much higher interest rates on all debts, but you may also experience challenges in renting a home or even obtaining a good job. While a foreclosure will not stay on your credit report forever, it will make it extremely difficult to repair your credit. After seven years you may be able to remove a foreclosure by taking the appropriate steps required with the three major credit bureaus. This is why it is important to exhaust all available options before allowing your house to be foreclosed upon. Occasionally people who are very proactive in repairing their credit can use specific strategies explained later in the “Credit Repair” section to improve their credit and mitigate the harmful effects of foreclosure.

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