Homeowners today who can’t make their house payments and find themselves in a financial hardship may inevitably be faced with two options, a short sale or a foreclosure. I don’t think there would be much debate on the subject. If you found yourself in this position, a short sale would be the preferred choice.

Why then do so many people lose their homes in the foreclosure process?

1. First of all, a mentality exists that if the problem is ignored it will go away. Many lenders these days are so overwhelmed that they may be an implied participant to this perspective. Understand first that a homeowner is in default once the house payment is late. Is a lender likely to initiate foreclosure proceedings if your payment was due on the 1st and they have not received it by the 17th? Highly unlikely. This process used to take about 90 days before a “Notice of Default” was filed. According to a seminar I just attended, the speaker who is an attorney stated that lenders are so behind it is now taking almost 5 months before the lender files the notice. This notice which informs the property owner they have 90 days to cure the default or they proceed to a “Notice of Trustee Sale”, which will set the auction date of the property. I am seeing additional extensions being given on the “Trustee Sale” in the amount of 30 days. I have seen three extensions provided recently on one property.
2. Homeowner’s are unaware that options do exist or they wait until the last minute when it becomes too late. I have also seen people faced with the stress of foreclosure be too ashamed to speak with anyone who can help them. I would think when the process server shows up at your front door and posts the “Notice of Default” it becomes time to seek some advice and guidance.
3. Lastly, a homeowner in foreclosure thinks that through their own initiatives they will be able to refinance, rent, or have someone else assume the mortgage. Homeowners in default may be underwater on their house and no bank is going to refinance a property in the preforeclosure stages, you cannot rent it and cover the payment, and no one wants your problem mortgage.

As discussed, options are available to homeowners. I found the following chart at impact your sales now and it was published by the Depressed Property Institute.

One thing I would point out to you regarding deficiency judgments at the bottom of the page. My knowledge is that California uses a non judicial foreclosure process and deficiency judgments do not apply. Having said that, I am not an attorney, nor do I give legal advice. Please seek the advice of a legal or tax professional.

I should point out that the Distressed Property Institute has a disclaimer to the effect that they do not guarantee the accuracy nor will they assume any responsibility for this document. I think this is an informative guide but I would be remiss if I did not encourage you to seek legal counsel as to the recommendations or consequences in this document.

Tags: Foreclosure options, Is a short sale the preferred method of foreclosure, what happens after a short sale