UCAN

Foreclosure trauma depends on where you live because of the differences in state laws and the backlog of the court systems.  Here are two tips for navigating the dangerous waters of potential foreclosure.

Before borrowers take the following steps, it's best to call lenders prior to missing payments to try to get payments frozen, delayed, or suspended for as long as the negotiation process results will allow---enough time to avoid any actions after the fact.  People who waited for the default notice (especially in states where no court actions are necessary), the clock has pretty much struck midnight!  Rick Sharga, VP of marketing for foreclosure listings firm RealtyTrac said "that the very first two calls distressed borrowers should make are to the lender loss-mitigation department and not collections -- and secondly, to a local real-estate agent to assess for how much the house will sell and how long it would take".  More tips can be found at http://www.hud.gov/foreclosure/.

The degree of foreclosure trauma depends on where you live due to differences in state laws and the backlog of the court systems.  Having owned and sold properties in Texas, the state allowed lenders to auction properties just 21 days after the notice of public sale (http://www.foreclosures.com/www/pages/state_laws2.asp?state=tx.   Homeowners in New Jersey or New York could have more than a year to raise money http://www.foreclosures.com/www/pages/state_laws2.asp?state=ny), refinance or sell their place, courtesy of slow court systems. 

The long foreclosure timeline in some states means more red ink for lenders due to court costs and missed loan payments stacking up.  With a bigger risk on the other end, the underwriting standards are usually more difficult.  Getting loans would be much harder for buyers in these markets. Complicating matters are right-of-redemption clauses that allow homeowners in many states to buy the house back for the amount of the note plus interest which can be found together with the following summary of foreclosure rules for each state (http://www.tryforeclosures.com/z-article-state-foreclosure-laws.shtml).

In Minnesota or Alabama (http://www.foreclosures.com/www/pages/state_laws2.asp?state=al), the previous owner has up to a year to buy it back, causing headaches for new buyers or investors if they don't get the previous owner to waive this right.

A long foreclosure process is no guarantee that owners can sell and duck foreclosure. In these cases, the "timing" wouldn't necessarily work to the borrower's advantage.

In hot markets like California or Florida, where real-estate values increased at such a dramatic and rapid rate before cooling off,  recent buyers are stuck with notes worth much more than the house. James Gaines, a Texas economist said, "They can't afford to pay a 6% real-estate commission and come out whole".  Also, if the mortgage has been securitized or sold on the secondary market, finding someone with the authority to agree to a short sale could be difficult".  California timelines and procedures can be found at http://dca.lacounty.gov/TSForeclosure.html.  Another source for the most common California forcelosure laws can be found at http://www.foreclosures.com/www/pages/state_laws2.asp?state=ca.

Real estate advisors say many foreclosures can be avoided if people call their lender and try to work something out before missing a payment. Most lenders don't want to incur the hassles and costs associated with the foreclosure process.  Therefore,  many are  waiting a bit longer than state timelines to give buyers a better shot at keeping their homes. Freezes or delays in the foreclosure process are better options for lenders if borrowers are taking verifiable actions to work out the debt..

If a default notice has been issued, remember the advice provided by Rick Sharga, VP of marketing for foreclosure listings firm RealtyTrac. "The first two calls distressed borrowers should make are to the lender loss-mitigation department- not collections and the second call should be made to a local real-estate agent to assess sale value of the homel and how long it would take".