To break it down to its bare bones, a mortgage foreclosure happens when a lender exercises its lien against a borrower’s home in order to sell the house to pay off the mortgage loan. This, of course, only happens after the borrower has failed to make mortgage payments for an extended period of time, has ignored notices that the payments are behind, hasn’t bothered to call the lender to see what can be worked out. So how did we get from popping the champagne cork on closing day to having our belongings set out on the lawn? It didn’t happen overnight:

Step 1 – Notice of default is recorded by the bank
This happens after you’ve missed a payment. Usually, especially in the old days, it happened after several payments were missed. Banks are tightening the reins, however, trying to move homeowners to action long before the point of no return. So you’ve missed one or several payments, and now the bank officially records the notice of default.

Step 2 – Opportunity to reinstate the loan
This sounds pretty hopeful, doesn’t it? You can reinstate your loan! You have the power to stop the foreclosure process anywhere along the way-until five days prior to the auction of your home.but we’re getting ahead of ourselves. How do you reinstate the loan? Bring your loan payments current plus the late fees and whatever penalties are assessed, and you have just reinstated your loan. You’ve stopped the foreclosure. You won’t lose your house.

Step 3 – Date of foreclosure is set by the bank
But what if you can’t beg or borrow the back payments and other fees? Is all hope lost? Not quite. We’ve come to the third step of the foreclosure process: the bank sets a date of foreclosure. Typically, the date is three months (about 90 days) after the bank sets the notice of default. You are allowed to live in the house until the actual date of foreclosure. You cannot be evicted or thrown out of the house until this date. You still have time to come up with that money.

Step 4 – Notice of trustee sale is prepared, published and posted
Now the bank prepares the notice of trustee sale. The bank will publish it (you’ve seen those notices in your local newspaper). The bank then mails you a copy of the notice and physically posts it on the outside of the house. You still have time to bring the payments current.

Step 5 – The house is sold at a foreclosure auction
We’ve come to the final step: the foreclosure auction sale. If you are still living in the house and it is sold to a bidder at the auction, the winning bidder can have you evicted by the sheriff within 24 hours. If the house doesn’t sell, the bank will show the house just like you would if you were selling the house yourself. The bank may also have you evicted within 24 hours, or the bank may decide to let you stay until the house sells.

Bottom line: if you miss a payment, don’t let it turn into two. Find the money, even if you have to borrow from family or friends. Although the process can be stopped anytime up to five days before the sale, the earlier you intervene, the easier it is to stop.

Your Mortgage Has Been Sold:
Now What?
If you receive a letter from XYZ Mortgage telling you they’ve bought your loan and you should now send payments to them, don’t do it unless you receive a coinciding letter from your current lender. This type of mortgage scam goes on all the time, and many homeowners don’t even think twice before sending off a check.

Congress took note of these scams, and in 1990 moved to regulate the assignment, transfer or sale of mortgage loans. As part of the National Affordable Housing Act, certain provisions were added to the Real Estate Settlement Procedures Act (RESPA):

1.The lender must disclose to the borrower its policy on assigning or selling loans at the time a borrower applies for a mortgage loan. HUD has written a model disclosure statement that all federally related mortgage lenders must use.
2.If a lender assigns, sells or transfers your loan, both your current lender and the mortgage buyer must make certain disclosures, including the name, address and telephone number of the transferee, as well as the effective date of the transfer.
3.Each disclosure statement must declare that the transfer does not affect any term of the mortgage other than who’s servicing the loan.
4.A 60-day grace period ensures that borrowers can’t be penalized if they mistakenly send payments to the old lender. Even if you send your payment to your old mortgage company during this time, and they have to reroute your check, you cannot incur any penalties during this time, neither late fees nor black marks on your credit report.

Selling mortgages is becoming more common all the time. It’s called the secondary mortgage market. Organizations such as the FannieMae and FreddieMac purchase large packages of loans from lenders at a discount, providing the individual lender more cash available to generate new mortgage loans. Lenders depend on available cash to do business.
While having your mortgage sold over and over again can be inconvenient and annoying, the bottom line is that it’s good for everyone. Why? As more lenders enter the marketplace by issuing conventional mortgages, the result is more competition, which helps keep interest rates competitive from lender to lender because consumers have more choices. For more information, write to the Mortgage Bankers Association of America and request their free booklet, “When Your Loan is Transferred to Another Lender,” at 1125 Fifteenth St., NW., Washington, DC 20005.

Foreclosure Scams are on the rise because of the increasing number of foreclosures. It’s very important as homeowners to know about these scams..

Common Foreclosure Scams

1. EQUITY SKIMMING:

You are approached by a “buyer” that offers to buy your home at full asking price. The potential buyer claims he will solve all your financial problems by “promising” to pay off your mortgage. He claims to take over the existing mortgage and give you a sum of money after the property is sold. But in order to do so, he suggests that you move out right away and deed the property over to him. So you move out and assume the “buyer” will continue to make the mortgage payments. However, the “buyer” collects rent for the next 6 – 8 months and does not make any mortgage payments. The lender has no choice but to foreclose and all the while you have no idea what’s happening because you’ve moved out.

2. THE BAIT-AND-SWITCH:

Very similar to taking over “subject to”, but the acclaimed buyer is only after the equity. The buyer tells the homeowners he will bring the mortgage current and tells them they can stay in the home. But in order to do so, he must have a few documents signed that protect his interest and gives him ownership of the property. Then a few weeks down the road, the homeowner receives an eviction notice.

3. THE BAILOUT:

Again very similar to the previous two, where the homeowners sign over the deed with the assumption that they will be able to remain in the house as a renter or lease it back from the buyer and eventually buy it back over time. The terms of these types of scams are so harsh that they make it nearly impossible to buy-back which was the plan to begin with. The homeowner is left with nothing and the buyer walks off with most or all of the equity.

4. PHANTOM ASSISTANCE:

Typically these are online companies claiming to have the magic touch in stopping the foreclosure auction. They know all the ins and outs and what to say to the lender to stop the auction. Then these companies charge outrageous fees for simple phone calls and paperwork the homeowner could have completed themselves.

5. COUNSELING AGENCIES:

Some groups, most of them online, calling themselves “counseling agencies” may approach you or ask you to submit your information for a personal consultation to review your situation. They then proceed to offer certain services for a fee. Most of the time these “special services” you are paying for are FREE, such as negotiating a new payment plan with your lender, working out a forbearance, or lowering your interest rate. These are all things your lender will assist you with at no charge. Be careful giving ANYONE money online that claims they can assist you out of foreclosure. There are dozens of good, non-profit organizations and free counseling agencies that are ready and willing to assist.

6. Short Sale Companies. This is the newest breed of companies to avoid. Here is the bottom line, they make all their money from the fees you pay them at the start of the process. In other words, they have little to no incentive to get your short sale actually accepted and closed.

NOT A SCAM: One of the largest foreclosure assistance programs right now is 888-995-HOPE. This is available to any homeowner in America having trouble paying their mortgage. It is provided free of charge by the Homeownership Preservation Foundation, a nonprofit dedicated to preserving homeownership.

Here are a few things you can do to avoid foreclosure scams…

* DON’T SIGN any papers that you don’t fully understand, or you could make bad matters worse.

* DON’T SIGN any papers that you feel pressured into signing. Take your time.

* DON’T MAKE mortgage payments to anyone other than your lender.

* DON’T SIGN over the deed without some closure or agreement for your protection. Talk to your attorney or title company if you need help.

* DON’T EVER pay anyone who claims to stop foreclosure. You can stop the auction yourself.

So please pass this on the information below to your home owners!

This info comes from a book I co-authored with Tim and Julie Harris from the Harris Real Estate University.