4/27/2011

What Do You Do After Finding Out About the Notice of Default?

What if you have a Notice of Default recorded on your property? What then?
This is what happens when your bank or loan servicer no longer is receiving your mortgage payments, and they initiate legal action as stated in your loan documents, and according to California state law.

Once you start down this path, it can be a tough course to change unless you have the financial resources to pay the bank past due payments, plus interest and penalties.

Non payment can occur because your income has been reduced, you lost your job, your payment is going to increase above your means, and last, but not least, you wanted to get a loan modification and you were advised to stop making your payments.
The last reason is a common one, but it can lead the borrower down the wrong path. By the time he/she is behind 2-3 months in payments, it may turn out the homeowner does not qualify for the loan modification program. We hope you didn't pay anyone fees up front, because that's illegal now. PLEASE do not pay anyone an upfront fee for a loan modification, and get a second opinion at least before you stop making payments.
Your credit score will drop and the effect will continue as long as payments are not made, because every month the bank is reporting another 30-day late payment.
You have about 111 days from the recordation date until the time of the foreclosure sale. If your loan was made between Jan. 1, 2003 and Dec. 31. 2007, there is an additional 30 days for the lender to contact the borrower.  The Notice of Sale is usually recorded 20 days before the end of that period.
What can you do? 1) Pay your loan and make it current. 2) Put it on the market to sell it, either as a "regular" sale or a short sale depending on your loan-to-value plus costs of sale. 3) Rent it out, if you think market rent will cover the monthly costs, or your income will be able to make up the difference. 4) Try giving it back to the bank if there's only a first mortgage--if there's a 2nd with a different lender a deed-in-lieu will probably not work.

If you have considered all your options and you can't keep the property and your funds don't cover the deficient amount, please investigate a short sale. In most cases you will be able to obtain a future mortgage sooner than if you have a foreclosure--or a deed-in-lieu--on your credit report. More banks and servicers have become more efficient and able to deal with the volume of short sales in the market, and more buyers are willing to wait out the time period involved. Depending on the lender and the program, some short sales are being approved and closed within 90 days and less.  But remember, you have just a certain amount of time to obtain a buyer and get short sale approval, and then close escrow. Banks may extend the sale date one or more times, but usually they want an accepted offer in hand by a qualified buyer. So it's back to the loan modification point-in-time: think twice about not making your payment unless you know what's on the road ahead.

It will cost you nothing to weigh your options, a fact that more people should remember in spite of it being such a difficult thing to think about while you're in it. In fact, a lot of people let their properties go into foreclosure without having tried to sell it. Please don't do that without consulting with a real estate professional who's had experiernce with distressed properties.

Please contact me for a printed format on your foreclosure timeline, and for more information about the your options, and the difference between short sales and foreclosure. You may also go my distressed property page and also here for more information on foreclosure timelines and prevention.



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