A quick search of the Internet looking for consumer information on how to avoid foreclosure, yields articles written in legalese, or ads marketing to buyers letting them know that they can buy foreclosures cheap, or information that is really advertising by law firms to home owners. In most cases the point of the information is to get consumers to call or to fill out an on-line form so that they can be come a lead for someone who is selling some thing. Fair enough, a person has to make a living somehow.
State and Federal Government web sites have limited hard to find information on them that is often in PDF or DOC format, making it difficult for consumers to access. National web sites have generic information, on them. Real estate is local and locally regulated, persons facing foreclosure in Minnesota need to know how the process works in Minnesota. This is true about many or maybe most national web sites that pertain to any aspect of real estate.
If I were behind on my payments I would want to do a little research and figure out what to do next, it is unlikely that I would want to discuss the situation with a total stranger, or sign up on a web site giving up my personal information to someone who may be unethical or worse yet a spammer, the lowest form of life on our planet.
The local newspapers have done a fantastic job covering foreclosures caused by mortgage fraud and have even given some advice to home owners but not in great detail. It seems like everyone is trying to make some money off of people who have little.
Here is a high level overview of how foreclosure works in Minnesota.
1. A buyer purchases a home and gives a Mortgage to a bank. The home is used to secure the loan, if the borrower doesn’t make the agreed to payments the bank can take the home away through the foreclosure process. Most mortgage agreements include a “power of sale” which allows the bank to sell the home, if the borrower does not make the payments as stipulated in the reams of paper signed at the closing.
2. If the buyer gets behind on payments or stops making them altogether, the lender can demand payment in full and begin the foreclosure process any time they want to. This is called the equitable redemption period and lasts as long as the lender will allow. The home owner could call the lender and try to work something out. Maybe make some payments, or give a date by which they can be caught up again.
Keep in mind that the foreclosure process is costly for the lender. It is hard to call the bank when they are calling and mailing and hounding for the payment but talking and cooperating may be the best way to retain ownership of the home.
3. If buyer can not make the payments or the lender will not accept anything less than what is owned right now, the foreclosure process begins, and the home owner does have the option of selling the home and using the proceeds to pay off the mortgage. The home owner has the option of giving the home back to the bank, which does not save the home but is less damaging to the home owners credit rating than a foreclosure is. (we call this a deed in lieu) In some cases the bank may accept less than what is owed on the property and allow what is called a “short sale”
5. If the lender starts the foreclosure process a notice of a sheriffs auction is publish to the public once a week for six weeks. During this process the borrower is notified, by delivery, once a week for four weeks that the home will be sold at auction.
6. The sheriffs auction is held. The property is sold or maybe not. The home owner does not have to leave the property because there is still another step.
7. The statutory redemption period begins after the auction, it can be as short as five weeks if the owner abandons the property. The definition of the abandonment is a legal definition and does not necessarily mean the owners left the property. Having the utilities shut off, windows broken, a missing front door, or police calls to the property because of trespassing or disturbances can constitute abandonment.
In most cases the redemption period is six months long, if the owner has a great deal of equity in the property it is 12 months long. During the redemption period the owner can pay everything they owe and all the costs associated with the auction and keep the home. They can sell the home during this period and pay off the mortgage. – – In some cases they hook up with a crook who pays it off and charges them so much that they are in worse shape and the crook gets the house, sometimes for really cheap — equity stripping a topic for another post.
8. After the six month or 12 month redemption period ends, the home owner has to leave the property. If the property was purchased during the sheriffs auction and was sold for more than the owner owed on it, the owner gets the excess. If sold for less than the owner owed on it then the lender can take legal action to collect the difference.
9. If the home was not sold at the sheriffs auction then it is most often listed by a Realtor who specializes in selling bank owned properties. These homes are usually listed at a price reflective of the market value of the home.
The bottom line is by signing the mortgage papers the buyer is agreeing to all of this. Banks are in businesses and they lend money to make money. There is also such a thing as mortgage fraud, and our new Attorney General is on a mission to get rid of mortgage fraud in Minnesota through stricter legislation. There are some serious flaws some where in our system. Research has shown the foreclosures rates are the higher in some neighborhoods than in others.
If you are a home owner struggling to make payments here are some places to go for help
Related posts: Foreclosures
I extend an open invitation to any mortgage lender or attorney that would like to add value to this post. No track-back or comment spam please! Since we helped sell or finance the homes that are facing foreclosure, wouldn’t it be nice it we could also help someone keep that home?
Resources: Home ownership Center Abusive & Predatory Lending HUD – Help For Home Owners
3. If buyer can not make the payments or the lender will not accept anything less than what is owned right now, the foreclosure process begins, and the home owner does have the option of selling the home and using the proceeds to pay off the mortgage.
Teresa,
In NY a homeowner can in fact still sell a home while the foreclosure is pending. I am dealing with one now and the contract of sale can stop/postpone the actual auction date. The money can go to pay off back taxes, liens, mortgage payments and the balance can be kept by the homeowner.
I had one client who was heading into auction. I had two weeks to sell and get the home into contract – luckily I did it and the auction was postponed.
In Texas, we don’t have a statutory redemption period. Once the foreclosure auction is held, the home is owned by someone else. I’m surprised it’s not like that everywhere, since it seems like a more fair arrangement.
Hay Vikingness,
Too many Real Estate people-vote some off
2000 Bloggers-Idol meets Survivor with Apprentice: Vote some off the island!
The @List Blogroll(It’s like a Z list, only different)
Tino Buntic’s future is already here: It’s just not evenly distributed yet— Hotel @nyware’s Blogrolling Trend 2007 He selects, We elect. Get in touch with your inner Simon!
http://hotelanyware.blogspot.com/2007/01/2000-bloggers-american-idol-meets.html
Hay Vikingness,
Too many Real Estate people-vote some off
2000 Bloggers-Idol meets Survivor with Apprentice: Vote some off the island!
The @List Blogroll(It’s like a Z list, only different)
Tino Buntic’s future is already here: It’s just not evenly distributed yet— Hotel @nyware’s Blogrolling Trend 2007 He selects, We elect. Get in touch with your inner Simon!
http://hotelanyware.blogspot.com/2007/01/2000-bloggers-american-idol-meets.html
Hi there!
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Thank you so much for this detailed information. I just received the legal notice of foreclosure sale and thought I had a month to get my family out. It is comforting to know that we still have time to save up money for moving or even that we can still sell our house during the statutory redemption period of 6 months.
One thing that I am curious about though is how much of a notice do they give you when you do have to leave the home?
Question about forclosure/association dues in MN. I am on the board of our townhome association and we have a homeowner that owes major back-dues and he is scheduled for forclosure end of Feb.’09. If the bank takes the home back, does he still legally owe us those dues? The house was listed for many months but didn’t sell, and is now off the market as far as I know. We dont want to spend the legal fees to sue for them if it will just be wiped out upon forclosure. I guess the question is: Who gets paid first….us? ..or the bank? Thanks!
Lissa – I am sorry to hear about your job. I read about how the economy is getting better but there are too many without jobs.
Your first mortgage is the first lien holder and the first in line. The company that has the second mortgage can foreclose too but they won’t get a dime until the first mortgage is satisfied. Here is a link to Minnesota state laws, rules and more http://www.foreclosures.com/pages/state_laws2.asp?state=mn
If your residence is not in Minnesota please check with the state it is in because real estate and even foreclosures are heavily regulated on the local level. While I don’t specialize in foreclosures if there is some way I can help please let me know.
How does foreclosure work if you did 100% financing on your home? My loans are with two different banks. One bank has already sent a certified letter notifying me that the foreclosure process will begin in a month if I don’t catch up on payments. The other bank (home equity loan) is where I bank and they call constantly. I’ve lost my job, have very little money left, and cannot afford my house payments right now. Can the second bank try to foreclose before the primary mortgage bank? Or, will I have to pay the home equity loan? Please help me with this answer. Thanks.
Seems odd to think that someone could live in their home payment free for up to a full year. I know someone who is doing this, saving the money, and then letting the house go. Not because they can’t afford to, but because the law says they can. I am sorry for all of those who are in the situation where they try, but just can’t make it. I can’t imagine how hard this is for you.
It’s a terrible situation to be in. If you do get to the end of the line and are forced to leave, don’t do what so many other people do. I’ve seen homes totally trashed by the owner and thats just not right. People need to have a little more pride and not punch holes in all the walls or steal all the light fixtures.
We are a week from the sheriffs sale.
We have our loan thru a local bank that did not take monies from the govt so we cannot get help from govt.
We paid our mtg on time for 18 years and have been remodeling the house from the foundation up during that time and refinanced the house numerous times for money to put into the house so basically we have paid mostly interest to the bank for 18 years. Because of numerous pay cuts we could no longer keep up with the payment. The bank sent out an appraiser to see the value of the property and discovered that they could make the money that we almost did, we were about 30.000 away and 1 year and we lost the race. They can take the house , put 30,000 into it and make about 150,000 on it.They wont let us sell it to anyone for a deal because they want to make the money on it. Can we legally take stuff from the house and sell it or take it with us since the house is in remodeling stages throughout the house? I dont want to rape the house but I am angry the bank would not work with us and now they want to make the money on it that we should have. Our neighbor wants to buy it and let us live here and pay rent for about a year
What if you just don’t want to stay? The violence in my neighborhood has escalated over the past three years and last week someone was killed. I’m afraid to live here and want to get out but my home is worth about 25% of what I owe on it. I can afford the payments, but can’t afford the upkeep. It seems ridiculous to sink $$ into it.
melissa you can consider a short sale. it will hurt your credit rating but no as badly as a foreclosure. A short sale is where the bank agrees to take less than what is owed on the home as a pay off of the mortgage. Also rents are way up it may be possible to rent your home out and live some place else.
Thank you. Last year a realtor offered to help and after talking to her, she was going to talk to the agency’s lawyers and I never heard from her again. I assumed I wasn’t qualified to do a short sale. As for renting, I’ve seen all the trouble renters have caused on my block and I don’t think I could deal with that.
Usually you talk to your lender about a short sale. Have you talked to your lender?