What is the default process? I’m going to try to explain what the information on this chart means but… it is when someone starts getting behind on their mortgage payments and they are usually at least 3 months behind before the following occurs:
Basically, there are only 4 results that can happen when a person isn’t able to stay current on their mortgage payments:
- NOTS= NOTICE OF TRUSTEE SALE is sent to the homeowner. This notice gives them 90 days to do something otherwise the bank will try to sell them home at a Trustee Sale. (Please see resource tab of website for more information and a slide show re: what happens at Trustee Sales) Most lenders will either issue a postponement or a cancelation of the Trustee Sale (aka Foreclosure Proceeding) as long as someone contacts them and tries to work out an alternative solution. Unfortunately the majority of homeowners facing this do nothing and put their heads in the proverbial sand and ultimately do lose their homes, which only adds to this crisis.
- REINSTATEMENT OF LOAN= This means that the Lender will allow the borrower to add the missed payments to the end of the loan and allow them to become current under the original loan terms. In this situation one normally needs to show that it was a one time problem that caused them being late. It’s also commonly called a Forbearance. For most this isn’t an option.
- LOAN ADJUSTMENT= By proving a hardship, one can request what is called a loan modification in hopes of getting the payments reduced to where they are affordable. Financial information must be sent to the Lender with an application to be considered. The government has stepped in and have some programs (HAMP and HAFA) intended to help those in need but in my opinion, they aren’t enough. This process can be tedious and time consuming and many give up. In some opinions, these are just temporary Band-Aids because to get principal reductions to what the current value is has not happened with anyone I have met or heard of . The recent stats are that 58% that do get approved for these loan modifications end up in default again as well. I had one client recently that fought with her Lender for a year and they extended her loan to 40 yrs and reduced her interest rate but changed the loan from an interest only and in the end it only reduced her payment $100, which wasn’t the help she had asked for. Typically the Trustee sale is either cancelled or put on hold by the Lender during this process.
- SHORT SALE= Default process is over because the borrower sells the home short with the Lender(s) approval.
SHORT SALE VS FORECLOSURE GUIDELINES (Published by CDPE February 2010)
There is another option called “Deed in Lieu” which is basically the homeowner giving the house back and is considered a Foreclosure without having to go thru the legal proceeding of a Trustee Sale. If the home doesn’t sell to a private 3rd party (many investors pick up great bargains) at a Trustee Sale (aka Auction), then title goes back to the bank and they have to remarket the home. That’s where the term REO (Real Estate Owned) comes from, sometimes called a Lender or Bank Owned Home. Those homes get marketed normally on the MLS, here’s a link to the Bank Owned Homes in our area.
If you have any further questions about this process, feel free to call us at 480-243-4242 or go to our Get Started Tab and enter in your information so we can see if we can help you or someone you know who is in DEFAULT on their Mortgage payment(s). We do everything we can here to help those that need it!