Like so many people, our friend ‘Emily’ recently lost her home in a foreclosure. With all of the attention in the news these days to the “F” word, you’d think we’d all be experts by now. However, the more we spoke with Emily about her situation, the more we realized how little we actually knew about the foreclosure process! Even from our brief conversation over coffee, we learned a lot more than we had before about this timely topic…
Could It Happen To You?
In fact, Emily was just one of the millions of Americans who was offered an incredibly low introductory mortgage rate. Like so many people, after the introductory period ended and her adjustable rate skyrocketed, she quickly found herself unable to make ends meet. Before she knew it, she was in so over her head, there was nothing left to negotiate, and there was no feasible option that would allow her to keep her home.
Just Walk Away?
For starters, we had always assumed that a foreclosure meant you could just walk away from your financial responsibility to your mortgage lender—by vacating the premises, you vacate any monetary responsibility, right? Wrong! At least in many circumstances. For Emily, not only was she dealing with the pain of foreclosure, but she then realized she would still owe the lender money on the home—even after she moved out!
Making Up The Difference
This was shocking to us, but once Emily explained it, it did make sense. Particularly in a bad housing market, there is often a difference between what you owe on the mortgage and what the bank sells the home for at auction. We’ve all heard stories about foreclosed homes being sold for 70% less than what the original homeowner paid. Well, that difference doesn’t just magically disappear, which means you may end up having to pay the lender the difference. These laws vary state by state, so make sure you have a lawyer guide you through the ins and outs of your state’s laws on the subject! But it is important to realize that when you vacate a foreclosed home, you may be left with a lot more than ‘just’ a ruined credit report!
Money For Moving
One bright side for Emily, was that she was offered a so-called ‘Cash for Keys’ arrangement from her mortgage company. This basically means that the mortgage servicer offers you a certain amount of money to vacate by a certain date and leave it in ‘broom swept’ condition. The sooner you get out, typically, the more money you get. This helped Emily out in a big way by giving her enough money (several thousand dollars!) to cover her moving expenses.
The Lawyers Descended
As soon as Emily’s foreclosure proceedings began, countless fliers from law firms started appearing under her door. One day, she picked up one of the fliers and went to go see them. She was suspicious after her meeting—her intuition was telling her something was wrong…and she was right! As it turned out a) The person she met with was actually a paralegal—not an attorney and b) told her for a set fee of several thousand dollars he was “99% sure” he could halt her foreclosure proceedings. Luckily, Emily listened to her intuition and decided to look elsewhere for legal help!
When searching for the right attorney to help you, a good place to start looking for a referral is at your state bar association—Emily ended up finding a great referral through hers. Make sure the person you speak with is actually an attorney, see what their disciplinary record is like, and if anyone claims they are 99% sure they can fix your situation for a large amount of money—run, don’t walk—to the nearest exit!
To Her Credit…
To add insult to injury, that’s right: foreclosures stay on your credit report for seven years! Yuck. But rather than just throw in the towel, it is to your advantage to start building up a better credit history immediately. We’ve seen some people so thrown by the pain of foreclosure that they never recover their financial footing. It is not easy, but if you can dig deep and try and use this as a learning experience, you—and your credit report—will be the better for it.
To read Emily's story in its entirety, head on over to Fabulous and Frugal. CLICK HERE.
Tell us in the comments: Do you know anyone who has gone through a foreclosure?