Understanding the Foreclosure Process
What Is Foreclosure?
Foreclosure is the process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a lender files the appropriate documents with the appropriate officials (see below for more details).
Colorado Foreclosure Laws
Colorado foreclosures occur through both in-court (judicial) and out-of-court (non-judicial) proceedings.
The judicial process is used when no power of sale is present in the mortgage or deed of trust. The process begins when the mortgage lender files suit with the court system. The borrower then receives a letter from the court demanding payment. Typically, you’ll be given 30 days to respond with payment or a written response to the bank’s attorney and parties involved. If you do not respond within the time limit given, a judgment will be entered and the lender can request sale of the property by auction. If you file a written answer with the court, there is a hearing and the process takes longer and can even be forestalled. If a judgment is entered, then an auction date will be set, usually several months in the future. Once the property is sold, you’re served with an eviction notice by the sheriff’s office, and you must vacate the home immediately.
The most commonly practiced method of foreclosure in Colorado is the non-judicial foreclosure process. It is carried out by a Public Trustee who acts as an impartial party. The process begins when the lender files the required documents with the Public Trustee of the county in which the property is located. The Public Trustee then files a „Notice of Election and Demand“ (NED) with the county clerk and recorder. Once the NED is recorded, the Public Trustee Sale of the property is scheduled to take place between 110 and 125 days of the recording.
Many factors can lead to default of payment on a home loan and eventually foreclosure. Many are not the fault of the homeowner. Perhaps it is due to a hardship (loss of income, military deployment, health or family issues) or to „loan fraud“ or „creative financing“ by the banks (Adjustable Rate or ARM, Option ARM, Negative Amortization, or Interest Only loan). Whatever the cause, facing foreclosure is not an enjoyable experience.
The foreclosure process usually begins after the homeowner has missed several payments and different attempts have been made by the bank to collect. Let’s look at what typically takes place and what you can normally expect.
Day 1: You miss your first payment
Day 1-15: Grace period (Some lenders only allow 10 days)
Day 16-30: A late charge is assessed
Day 30: Borrower is in default
Day 45-60: Lender sends „demand“ or „breach“ letter, and phone calls begin
Day 60-90: Lender sends letters and makes phone calls. A repayment plan or a loan modification plan may be offered.
Day 90-105: The lender refers the loan to the loss mitigation department/foreclosure department and retains an attorney to handle the foreclosure.
Day 90-?????: The lender’s attorney files the required documents with the Public Trustee, who then files a NED with the county clerk and recorder. Once the NED is recorded, the property is scheduled to be sold within 110-125 days at a Public Trustee Sale.
Notice of Sale / Auction
Once the NED (Notice of Election and Demand) is recorded, the notice must be published in a newspaper of general circulation within the county where the property is located for a period of 5 consecutive weeks. The Public Trustee must also mail a copy of the published notice to the homeowner within 10 days. At least 21 days before the Public Trustee Sale, the Public Trustee must mail a notice to the homeowner describing how to redeem the property and stop the sale.
If the homeowner wants to redeem the property and stop the Public Trustee Sale, he must file an „Intent to Cure“ with the Public Trustee’s office at least 15 days prior to the foreclosure sale. He then has up till noon of the day before the sale to bring the loan current and redeem the property.
The Public Trustee typically conducts the sale at the courthouse. Bidders must register in advance and have funds available. At the sale, the public trustee reads the written bid submitted by the lender, then any registered party may bid. The winning bidder is given a certificate of purchase.
There is no longer any redemption period for the homeowner after a foreclosure sale in Colorado.
How to Avoid Foreclosure -What Are Your Options?
It’s a harsh word that most people avoid thinking about…until they have to. If you are several months behind on your mortgage, without money for professional help, and at the end of your rope…foreclosure may be the ONLY thing you can think about. It preys on your mind and leaves you feeling lost and vulnerable to the come-ons of the unscrupulous ‚professionals‘ who say that they are experts in foreclosures, but aren’t. STOP!
You may be in a difficult situation, but it is not hopeless. Foreclosure is not your only option! My name is David Stitt, and I’ve got good news for you. You do have alternatives. You just can’t see them right now. But by the time you finish this short guide, your vision will have cleared and options for your future…good options…will be right before your eyes.
You are not alone! In the United States, foreclosure filings have increased consistently over the past few years, with more new foreclosures reported in every quarter, pushing the foreclosure market to record levels. So you are not alone. But if you’re like the many thousands of people facing foreclosure, you’re scared and confused. You’re overwhelmed by the legal mumbo-jumbo of foreclosure litigation. You don’t know who or what to trust. You’ve undoubtedly been pinned to the mat by Realtors and Attorneys, warning you about the dire consequences you’ll face if you don’t use their services. Or maybe you’ve worked with mortgage brokers. They promise the world – or world-class loans – and then they don’t deliver. And then there’s the holder of your mortgage who is unwilling (maybe after months of negotiating) to budge an inch when it comes to working out a more affordable payment plan.
After all you’ve probably been through, I’m not surprised that you’ve given up hope for a ‚good‘ solution and may feel resigned to accepting foreclosure and the years of damage it will do to your credit rating. Once again, STOP! Don’t fall into despair. Things are not as bad as they seem. There are other options.
A helping hand when you need it.
This Survival Guide is exactly what the name says it is: a simple, no-nonsense approach to foreclosures. It was created to help you and other homeowners become better informed about the details of the foreclosure process. I believe that knowledge is power…and I hope that this guide will give you the power to avoid foreclosure entirely.
Once you know the facts, you’ll be able to make a well-reasoned and thoughtful decision and then take action with the confidence that you’re doing what’s best for you.
On the next couple of pages, we are going to take a look at your different options and the pros and cons of each. You will be given the information you need to make a well-educated decision regarding your situation.
What Are Your Options?
Forbearance is a payment plan that a debtor enters into with a lender when they are unable to make timely payments, often due to illness or another temporary situation. In forbearance, the lender will allow you to delay payments for a short period. You agree that after missing payments for a few months you will bring the account current by making larger payments. The problem is, more than 85% of debtors default after the first payment. They cannot continue to make the inflated payments after the forbearance period ends, and they are right back where they started.
A loan modification is a permanent change in one or more of the terms of a mortgagor’s loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount. However, Loss Mitigation Departments are now undermanned, under experienced, and overworked. Nightmare stories abound on the subject of patrons having to hound and harass Loss Mitigation Departments to get their paperwork pushed through to escape foreclosure. After all the hassle, most homeowners are still denied any help and end up in foreclosure.
Your lender may be able to work with you to obtain a one-time payment (loan to be paid at end of mortgage) from the FHA-Insurance fund to bring your mortgage current. You may qualify if your loan is 4-12 months delinquent and you are able to start making full mortgage payments.
Deed-In-Lieu (Voluntary Foreclosure)
As a last resort, you may be able to voluntarily „give back“ your property to the lender. You may qualify if you are in default and don’t qualify for any of the other options, your attempts at selling the house before foreclosure were unsuccessful, and you don’t have another FHA mortgage in default. „Foreclosure“ will most likely be reported on your credit report.
This is where someone else takes over the payments of your loan, usually in exchange for your property. Loans made after 1988 are almost never assumable.
Many debtors will spend a lot of money for an attorney to file a Chapter 13 bankruptcy – which is really a payment plan – only to lose the house. In essence you are paying the attorney instead of the lender. Before acting, know how much the process will cost and what your new increased monthly payment will be. Also know that if you miss one payment, your Chapter 13 will be dismissed and you will need to file Chapter 7. This will cost more attorney fees, assets, including your house will be liquidated and your credit report will still show a foreclosure.
Sale of Property
If the homeowner has equity in the property they can and should consider selling the property. The homeowner will receive a check at closing for equity over and above what is owed and closing costs paid. Most homeowners in foreclosure, however, have little or no equity. Be careful listing with a Realtor that can tie up your property for months.
When it comes to the threat of foreclosure, procrastination is a prescription for disaster. Doing nothing changes nothing. Unless you take action, you will end up in foreclosure and your credit will suffer for the next 5-7 years.
Pre-Foreclosure Sale (Short Sale)
The pre-foreclosure sale program allows the lender in default to sell his/her home and use the net sale proceeds to satisfy the mortgage debt, even though these proceeds are less than the amount owed. It has two major advantages over a foreclosure: (1) You may be eligible for a new home loan after just 2 years instead of 5. (2) You should be able to avoid a deficiency judgment. When a house is sold at auction, the chances of the foreclosing lender filing a deficiency judgment increases dramatically. They will have years to come after you or to sell it to someone else who will.
As you can see, there are several options to consider – but consider you must! You cannot afford to stick your head in the sand like an ostrich and do nothing. Being in the state of denial is a bad state to be in! And as we said earlier, procrastination is a prescription for disaster.
Questions You Need to Ask
Questions You Need to Ask Yourself
1. If I file Chapter 13 Bankruptcy, will temporary relief from my monthly mortgage payments mean that I will be able to stop foreclosure forever…or will I be unable to keep up with my payments when they resume and I end up in foreclosure again?
2. If I choose Forbearance or a lender payment plan that gives me temporary relief from payments I can’t afford now….will I be able to afford the inflated monthly payments that I’ll have to make in the future, or will I end up in foreclosure again?
3. If I am unable to meet my monthly expenses now, can I commit to a payment plan…or should I just give up my house to a lender with a Deed In Lieu and accept the bad foreclosure mark on my credit history?
4. If I do something now, will I have more options available to me…or should I wait until the sheriff is at my doorstep with an Order to Vacate and hope that he/she will show me mercy?
5. If I consult with an experienced Real Estate Investor, will I be able to get out of this situation without ruining my credit…or is my only option to spend thousands of dollars for Attorney fees, Realtor commissions and still run the possibility of losing my house?
Questions to Ask Your Mortgage Broker
1. Do you guarantee in writing that you will close my loan before my case goes before a judge in court?
2. What interest rate will you charge?
3. How many points do you charge?
4. What will my monthly payments be compared to what they are now? Higher? Lower? The same?
5. What will the total of all closing costs be?
Questions to Ask Your Attorney
1. If I file for Chapter 13 bankruptcy, will it stop foreclosure or just stall it?
2. What are your fees for filing bankruptcy papers and handling my case?
3. What will my monthly payments be compared to what they are now? Higher? Lower? The same?
4. What happens if I default on my payments because I can’t make them?
5. Can’t I file a bankruptcy myself at the courthouse and save thousands of dollars?
Questions to Ask Your Realtor
1. Do you guarantee in writing that you’ll sell my house before my case goes before a judge in court?
2. Do I have to pay your commission if I find someone on my own who wants to buy the house?
3. How much do I owe you if you don’t sell the house and I lose it to foreclosure due to a judge’s ruling?
4. If the sale price doesn’t cover my indebtedness and your commissions, do I have to reach into my own pocket to pay you?
5. How long will your listing contract tie up the house and entitle you to a commission?
Questions to Ask Your Foreclosing Lender
1. Can you work out a payment plan (forbearance) with me and will you put everything in writing before I agree to it?
2. If I agree to these terms, will you agree in writing to stop the foreclosure?
3. What will my monthly payments be, compared to what they are now? Higher? Lower? Same?
4. If I’m late on this payment plan, do you start where you left off with the foreclosure?
5. Since forbearance means a big increase in monthly payments, can you tell me how many people end up back in foreclosure because they cannot afford the monthly payment?
What To Do Now
Step 1: Get answers to your questions.
Not only do you need answers to the questions above, but there may be other questions you are asking yourself. Don’t be intimidated by the ‚experts‘ you’re consulting. Remember they work for you.
Step 2: Make a decision…and follow through on it!
Once you have the facts you can decide on how to proceed and who you need to help you. The sooner you act, the sooner you can reverse the downward spiral and change your credit from bad to better.
Step 3: Act Now!
After you’ve done your homework and feel you’ve come to an informed decision, you’re halfway there. Don’t let inertia set in. Don’t procrastinate. ACT NOW before your window of opportunity closes.
One final thing to consider: Get a Forensic Loan Audit!
A large majority of the loans made during the last 10 years, especially sub-prime and adjustable rate mortgages were not done properly and have errors and violations.
The Forensic Loan Audit is the FIRST STEP you should take to properly prepare for any type of litigation or any type of solution when dealing with your lender. Audits are used as a valuable tool to get your file to the top of the lender pile and to get your case noticed and heard!
The more violations found in your mortgage, the more LEVERAGE you have to argue your case against your lender. With millions of homeowners requesting financial solutions, it is increasingly more difficult to get the results you want when you need them. You need every tool, every amount of leverage possible! The Forensic Loan Audit is that tool!
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by David Stitt