Should I Let My Home Go into Foreclosure?

I get this one quite often, which is a bit scary, because it begs the next question… how many people are considering this option?

In order to answer this question, you must first understand the foreclosure process. I can’t tell you how it works in every state since certain states have a “judicial foreclosure” process while other states are “non-judicial”, such as CA.

So how does a Foreclosure work in California? For those who don’t know what a foreclosure is, I’ll give you the brief run down. For a more lengthy description, shoot me an email. After one missed payment, your lender has the option of filing a “Notice of Default” or “NOD”. They may or may not exercise this option after one missed payment, but they do have the option. The filing of the Notice of Default makes the situation public knowledge, and often leads to a new pile of mail for the homeowner. Once the NOD is filed,  a period of 90 days known as the “Redemption Period” begins. During this period, the homeowner will have the option to bring their payments current or “redeem” the property.  If the property is not redeemed at the conclusion of the 90 day redemption period, the “Publication Period” begins, where the bank may now file a “Notice of Trustee’s Sale” or “NOT”. During this 21 day period, the bank will advertise the sale of the property and give specific instructions such as time, place, and even a starting bid. After 21 days have passed, the foreclosure takes place on the steps of the county courthouse in which the property is located {although there may be several courthouses in your county where this could occur}, and the property is auctioned off to the highest bidder. There is no process of redemption in CA at this point, so that’s it! It now belongs to someone else. Unless no one buys it at auction, in which case the bank now owns it. The process is obviously a bit more complicated than this, but now you’ve got the jist.

So what happens to the homeowner after a foreclosure? Well, if you haven’t left yet, you will be facing “eviction”, another legal procedure where the county Sheriff shows up at the homeowner’s door and forces the occupants out while removing all their personal belongings to the curb. If you’ve ever witnessed an eviction, I can guarantee you you’ll never forget it.

Next comes the hit to your credit, and this is a big one. A foreclosure can make renting difficult and home buying next to impossible. It will take a minimum of 4-7 years before you can purchase a property again, and predicting the overall affect on your credit is almost impossible.

“So what are my options?” you’re wondering.

The best option is a “Short Sale”, a process by which a homeowner who cannot afford to make their payments sells the  home for less than is currently owed on it. For example, you purchased your home for $400,000. Between the market tanking, medical bills, loss of a job or income, or a host of other various reasons, you cannot afford the $3,000 per month payment anymore. Under certain circumstances, the bank may allow you to sell the home for $300,000, just to not have to go through the foreclosure process. You will want an Realtor who is experienced in Short Sale transactions (hint, hint) and has already worked with banks and successfully negotiated short sales. The process can be tricky and is extremely time consuming. If your agent drops the ball, even if you’ve done everything the bank asked you to do, the deal may still not go through. Make sure you discuss the process in depth with your agent before moving forward. If you’re not comfortable with your agent’s knowledge of the short sale process, FIND ANOTHER AGENT!
{legal disclaimer... If you are already working with an agent, this blog is in no way intended to be a solicitation of any kind. Feel free to disregard it}.

I will discuss Short Selling your home in California in depth at a later time, but the fine points are significantly better than foreclosure. Generally speaking, you will be allowed to purchase property again after only 2 years, and the hit to your credit is less damaging than a foreclosure. Since California is a non-judicial foreclosure state, the bank will most likely not come after you for a “deficiency judgement”, a judgement for the amount between what was owed and what the property ultimately sold for. There are other pros, but again, that’s for another time.

No matter what, make sure your agent has the knowledge, the tools, and the experience to guide you through these processes. The laws are constantly changing, and it is simply too important to leave these types of life-changing decisions to chance. As always, my door is open to questions or concerns. There is No Fee to contact me, and everything you tell me will be kept confidential. So feel free to contact me anytime. And good luck!

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