HANDLING EXISTING DEBTS
• Let the lender foreclose—force a sale of your house. If this happens, you may still owe money. In most states, if the sale price doesn’t cover what you owe, the lender gets a “deficiency balance”—the difference between the amount you owe the foreclosing lender and the amount for which the foreclosing lender sells the house.
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The U.S. Department of Housing and Urban Development (HUD) can give you the name of a reputable local housing counseling agency. If you’d like this referral, or if you are at risk of default on your mortgage or foreclosure, call 800-569-4287. For more information on predatory lenders, see the American Association of Retired Persons (AARP) website at www.aarp.org/money/ consumerprotection/financinghomes and the HUD website at www.hud.gov.
How a Foreclosure Works If you haven’t been able to sell your house and you don’t just walk away, your lender will probably foreclose. Here’s generally what to expect (the exact process varies from state to state). After you miss a few payments, the lender will send you a letter reminding you that your payments are late and imposing a late fee. If you don’t respond, the lender will wait another 60 days or so and then send you a notice telling you that your loan is in default and that it will begin foreclosure proceedings unless it receives payment. After getting this notice, you have about 90 days to “cure” the default and reinstate the loan— pay all your missed payments, late fees, and other charges. If you can’t bring the loan current, the only way to avoid foreclosure is to sell the house during this period. If you were being picky before, now is the time to accept any offer. If you don’t cure the default, the lender applies to a court for an order allowing it to sell your
house at an auction. (Obtaining court approval is not necessary when the lender issues a deed of trust, instead of a mortgage. The two documents are virtually the same, except that the holder of a deed of trust can forgo court involvement.) Then the lender publishes a notice of the sale in a newspaper. Between the dates when the notice is published and the sale takes place, most lenders let you reinstate the loan by making up the back payments and penalties. If you don’t reinstate the loan or sell the house, the lender will “accelerate” the loan. This means you no longer can reinstate the loan. The only way you can keep your house is by paying the entire balance immediately. If you don’t pay the balance, your house will be sold at a foreclosure sale. Anyone with a financial interest in your house will attend. The house is sold to the highest bidder.