Welcome Back Readers! I wrote this article a little over a year ago and thought it would be worthwhile to refresh it and repost. Why? Well, here in Lancaster Pennsylvania we are in much better shape than many other areas, we do not have, and should not expect, a flood of foreclosures. That being said, foreclosure is the reality many homeowners are currently facing and the majority of them do not understand the process. First and foremost, this article is not in any way considered to be, or offered as, legal advice. I am not an attorney and all homeowners with specific questions about the foreclosure process should consult with an attorney. With that being said, I am going to lay out in simple terms just what to expect in the process. Let’s get started, read on after the jump for more! So, you are behind on their mortgage and the foreclosure process has begun. Or maybe you aren’t behind but will start missing payments in the near future. Questions flash through your mind: How much time do we have, can we do a short sale, are we too late to do anything, what’s going to happen?
There’s no need to panic. Most homeowners in this situation are concerned about ending up on the street, some may be hoping to save their equity and move on to a rental until they can get back on their feet. Unless you have waited until weeks before the scheduled Sheriff sale, odds are there is ample time to find a solution.
The first step in dealing with a home in a foreclosure process is to understand just where the you are in the timeline and what your options are. Either way, whether selling or staying, you can solve this problem, but you need to get to work.
Many homeowners facing foreclosure just pack up and walk away. That is the last thing you want to do. Having a foreclosure on your credit report causes SERIOUS damage that takes years to recover from and in many cases lenders will pursue judgements agaianst you for any remaining unpaid balances after they sell the home. A better solution is to try and sell the home (yes, I know I am a Realtor, but I am not just saying that, it’s the truth). By selling the home, you can most likely satisfy your debt in full or do a “short sale” where the lender releases you from a further obligation. The best solution credit wise is to sell and pay in full, but a short sale is less damaging to your credit than a foreclosure and much easier to “recover” from.
The foreclosure process itself is very fluid and changeable. There are many opportunites to stop the process. Depending on how the homeowner has proceeded thus far, if they take advantage of all the opportunities to appeal the process or file responses to the lenders paperwork in the courts, if all possible extensions are granted, the process could extend out for significantly longer than the timeline below, sometimes as long as 18 to 24 months from the time they stop making payments. Here is a brief example timeline from the Pennsylvania Housing Finance Agency (PHFA) website, pretty much the “shortest” (about 9 months) possible, worst case scenario:
1. 1/2/2008 January payment becomes past due.
2. 2/2/2008 February payment becomes past due account is now due for 2 payments.
3. 3/2/2008 March payment becomes past due account is now due for 3 payments.
4. 3/5/2008 Lender sends the Notice of Intent to Foreclose (Act 6 Notice) to the mortgagor. If applicable, the lender will also send an Act 91 Notice that makes the mortgagor aware of the Homeowners’ Emergency Mortgage Assistance Program (HEMAP)*.
5. 4/8/2008 Act 6 and Act 91 Notices have expired – Lender refers account to Foreclosure attorney.
6. 5/8/2008 Foreclosure attorney begins the legal process by filing a “Complaint” at the county courthouse.
7. 6/23/2008 Mortgagor does not respond to the complaint a “Default Judgement” is entered.
8. 6/25/2008 Sheriff’s office schedules a “Sheriff Sale” date.
9. 7/25/2008 Notice of “Sheriff Sale” is sent to each mortgagor on the loan.
10. 8/25/2008 “Sheriff Sale” is held.
11. 8/27/2008 Sheriff prepares and records a deed conveying title to the purchaser. If a third party does not purchase the property, the deed will convey title back to the lender.
12. 8/27/2008 Eviction process begins if the mortgagor still resides in the property.
An important consideration is that there are many solutions (not many of them easy) from workout arrangements to loan modifications to temporary HEMAP loans to bring things back on track if the owner wants to stay. You do not have to sell to avoid foreclosure. This process will not be easy and the lenders, in many cases, are unnecessarily obstinate and uncooperative, with lots of red tape and process you must navigate to get any answers. Patience is the key, but if you want to stay you may be able to work out an arrangement with the lender to do so.
Okay, now back to the sale. Depending on where you are in the process, you may have an additional $5,000 to $20,000 in fees and expenses ON TOP of your loan balance. By all accounts, once you get to step 5 in the timeline above, you can count a minimum of $3,500 to $5,000 in fees tacking on, almost overnight. Every day that passes is another opportunity to incur more legal fees. This process can take an easy sale with a little seller equity into the nightmare world of short sale negotiation, where months can pass waiting on the lender to respond to your offer, all the while with your client incurring more fees and going farther down the hole.
If step one is to determine where you are in the timeline, then step two is finding out just how much you owe. Here is the simplest solution most people forget. No matter where you are in the process or how uncooperative the lender has been so far, the lender cannot refuse payment in full (loan balance, interest, fees, etc). If you get a buyer who is paying a price high enough to cover your loan balance (inculding the thousands in fees) the lender will happily take your payment in full and report that you staisfied your debt. So, if you have the “equity” in the home to satisfy your obligations other than time adding fees to your process there is no need to worry about the lender at all, no need to deal with all the red tape.
You must act quickly to sell the home and minimize any further damage to your credit or finances. In the past, I have been able to have a lender put a “hold” on the foreclosure process for 30 days or more to allow the client time to get the home under agreement once we listed, although that is happening less and less. It took some wrangling to do, but it avoided a short sale situation because we were able to hold off those additional legal fees. If the lender will do it, then get them to do it quickly and put the house on the market NOW.
Although time and the “process” are on your side as far as keeping you from being immediately homeless and working out a repayment plan if you are staying, it is NOT on your side from the standpoint of selling as those fees keep racking up the longer the process goes. If you want a simple solution to selling during a foreclosure, price the home properly and get it into market ready condition. Take the quickest offer that has them walking away with the least amount of damage (notice I did not say most profit, which is not always the same thing). Every other path is complicated, time consuming and quite honestly not very profitable for you. holding out for an extra $5000 from a buyer will just get eaten up by the fees. Also, each month you are delinquent causes further damage to your credit. Remember, the longer the process takes the harder it gets.
I hope you find this information helpful, if you live in Lancaster County PA and are considering selling your home, I’d love an opportunity to sit down with you and discuss how I can help you find the best solution to your situation.
As always, I’d like you to be part of the conversation, so if you like what you read here please comment, forward The Lancaster Connection.com to your friends and subscribe!
If you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!
Your Friend in Real Estate,
Jason Burkholder
Weichert, Realtors – Engle & Hambright
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*According to the PHFA website: HEMAP is a loan program designed to protect Pennsylvanians who, through no fault of their own, are financially unable to make their mortgage payments and are in danger of losing their homes to foreclosure. HEMAP funds loaned to prevent foreclosure are not a grant. The funds are a loan and must be repaid. When approved for HEMAP assistance, a loan is created (secured by a mortgage on the property being threatened by foreclosure) to bring the delinquent payments current. See the www.phfa.org for further details.
