Question: If faced with foreclosure , what are my options?

Answer: Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control.

You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure . If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their "loan." If your money problems are long term, the lender may suggest that you sell the property , which will allow you to avoid foreclosure and protect your credit record.

As a last resort, you could consider a deed-in-lieu of foreclosure . This is where you voluntarily "give back" your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure .

Question: When do foreclosure proceedings begin?

Answer: Usually after the borrower has missed three consecutive mortgage payments. The lender will record a notice of default against the property . And unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale, where the property is sold to the highest bidder.

Question: Will I be able to buy again after losing a home to foreclosure ?

Answer: It can happen. But a lot will depend on your circumstances and the mortgage interest rate you are willing to pay. Generally, most lenders will consider your request for a home loan two to four years after your foreclosure . Predatory lenders will issue a home mortgage in less time. But beware - they routinely charge high mortgage interest rates, fees, and penalties for this privilege. A quality lender will expect you to show that you have cleaned up your credit. Providing a reasonable explanation about the circumstances that led to the foreclosure - such as exorbitant medical expenses - is also helpful.

Question: How can I protect my home from creditors?

Answer: Check with your state. It may provide special protection through the filing of a homestead exemption, which exempts some or all of the value of your equity in the homestead - or home that you live in and the land on which it sits - from claims of unsecured creditors. Whether to file a homestead exemption will depend on your situation. Contact your county recorder's office for details.

Question: What types of foreclosures are there?

Answer: There are two types judicial and non-judicial. A foreclosure that results from a court action is a judicial foreclosure . The mortgage deed or trust does not have a power of sale clause, therefore the lender, trustee or another lienholder must take the borrower to court to recover the unpaid balance of a delinquent debt. By contrast, a non-judicial foreclosure is one in which a foreclosure can be completed outside the court system. Real property can be sold under a power of sale in a mortgage deed or trust that is in default, but the lender is unable to obtain a deficiency judgment.

Question: Can a home be sold for less than its mortgage?

Answer: Sometimes. But it is a complicated process and a lot will depend on the lender.

This process is called a short sale, which occurs when a lender agrees to write off the portion of a mortgage that's higher than the value of a home. But, usually, a buyer must be willing to purchase the property first.

A short sale may be more complicated if the loan has been sold in the secondary market. Then the lender will need permission from Freddie Mac or Fannie Mae, the two major secondary-market players. If the loan was a low down payment mortgage with private mortgage insurance, the lender also will need to involve the mortgage insurance company that insured the low down payment loan.

The short sale can keep the homeowner from landing in bankruptcy or foreclosure . But it is not an easy procedure to approve, and it involves as much, if not more, paperwork than an original mortgage application.

Instead of proving your credit worthiness and financial stability, you must prove you are broke. And any remaining difference between your home's value and the balance on your mortgage is considered a forgiveness of debt, which usually means it is taxable income.

Question: How long do bankruptcies and foreclosure stay on a credit report ?

Answer: They can remain on your credit record for seven to 10 years. However, a borrower who has worked hard to reestablish good credit may be shown some leniency by the lender. And the circumstances surrounding the bankruptcy may also influence a lender's decision. For example, if you went bankrupt because you were laid off from your job, the lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, it is unlikely the lender will readily give you a break.

Question: What causes a foreclosure ?

Answer: A lender decides to foreclosure , or repossess, a property when the owner fails to pay the mortgage. Unfortunately, thousands of homes end up in foreclosure every year. Many people lose their homes due to job loss, credit problems, divorce, unexpected expenses, and during periods of economic instability.
Failure to pay property taxes may also cause a homeowner to lose his home. Trouble can also arise when owners neglect to pay local water bills and home insurance premiums.

Question: Where can I find foreclosure properties?

Answer: Look in the legal notices section of your local newspaper. A notice is also usually posted on the property itself and somewhere in the city where the sale will take place.

However, real estate agents are the best source for information about foreclosures before they begin. Often a property will be listed and the agent will know if it is approaching foreclosure . Perhaps the best way to get the information is to have your agent put the word out that you are looking for properties with pending foreclosures.

Another source can be the bank or financial institution that holds the mortgage. Of course, they generally will not give you the names of those who are facing foreclosure , but they may give the property owner your card or phone number.

Buying foreclosures is not easy. Savvy investors are highly skilled at nabbing these properties. Inexperienced buyers may find themselves surrounded by pretty stiff competition. They will need to get as much information as possible, including a "foreclosure inspection report" and an appraisal from the lender.

Question: What happens at a trustee sale?

Answer: When a homeowner falls behind on three payments, the bank will record a notice of default against the property . When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The lender that initiated the foreclosure proceedings will usually set the bid price at the loan amount. Successful bidders receive a trustee's deed as proof of ownership .

Trustee sales are advertised in advance and require all-cash bids, which can include cashiers checks. Normally, a sheriff, constable, or lawyer conducts the sale and acts as the trustee. Because these sales typically attract savvy investors, inexperienced buyers should come extremely prepared.

Question: What are the disadvantages of buying foreclosures?

Answer: Buying directly at a legal foreclosure sale is risky. Among the disadvantages:

• There is no financing. You need cash and lots of it.
• The title needs to be checked before the purchase . If not, you risk assuming a seriously deficient title .
• It may not be possible to inspect the property 's interior before the sale. So you have no idea of the property 's condition.
• Foreclosures are routinely purchased as is, which means you cannot go back to the seller for repairs.

Also, estate and foreclosure sales are the only property sales that are exempt from some state disclosure laws. In both instances, the law protects the seller usually the heir or financial institution who has recently acquired the property through adverse circumstances and may have little or no direct information about it .

Question: How do I find government-repossessed properties?

Answer: The Department of Housing and Urban Development (HUD) acquires properties from lenders who foreclose on mortgages that it insures. These properties are then available for sale to potential homeowner -occupants and investors only through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

The Department of Veterans Affairs (VA) also acquires properties as a result of foreclosures on VA guaranteed loans. These acquired properties are marketed through a property management services contract with a federal bank that then lists them for sale with local real estate agents.

Question: What are some of the guidelines for purchasing HUD foreclosures?

Answer: If you have the cash or can qualify for a mortgage, you can buy a HUD home. Down payments vary depending on whether the property is eligible for FHA insurance. If so, the down payment can be lower than the 5 to 20 percent required on conventional loans. HUD requires that all accepted offers be accompanied by an earnest money deposit equal to 5 percent of the bid price, not to exceed $2,000, but not less than $500.

Foreclosure properties are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied. If a HUD home needs to be fixed - and not all of them do - it can still be a bargain. HUD adjusts the asking price to reflect the fact that the buyer will have to invest money to make improvements. The agency also might offer special incentives such as an allowance to upgrade the property or a bonus for closing the sale early. And buyers can request that HUD pay all or a portion of the financing and closing costs. Contact your real estate agent for more details.
To learn more about HUD foreclosures, visit their web site at www.hud.gov.

Question: What about guidelines for VA foreclosures?

Answer: As with HUD, anyone can purchase a VA home. Qualified buyers also can receive the benefit of a VA loan no money down even if they are not veterans. If you are interested in purchasing a VA foreclosure , visit its web site, www.va.gov.