Government Stimlus Plan
There are several plans offered by the federal government to help homeowners avoid foreclosures, including FHASecure and Hope for Homeowners. These these programs only work if you do not already have a FHA loan. The most recent program to be announced is the Homeowner Affordability and Stability Plan, which is aimed at helping homeowners refinance their mortgages to lower their mortgage payments. Homeowners might qualify for a refinance at a 15- or 30-year fixed-market-interest-rate.
Make sure you research your options before you let your home get foreclosure on.

Foreclosure Vs. Short Sale

Foreclosure: When you let your home go into foreclosure several things occur that will affect you for a long time. When the bank sells your home at Sheriffs Sale and the sale is not enough to satisfy the amount of the mortgage, the mortgage holder may file a deficiency judgment against you to make up the difference. For example, a mortgage holder of a $100,000 mortgage, who only receives $80,000 at a foreclosure sale, may sue the borrower for the remainder of the amount due under the mortgage. A foreclosure stays on your credit report for a long time and it will affect your buying power for at least the next 3 years. In order for the lender to collect the money you owe, they could garnish your wages, savings accounts, or attach to your assets. In order to rid yourself of the deficiency, you might be pushed into bankruptcy. Bankruptcy is not as easy as it use to be and it normally remains on your credit report for 7 years.

Short sale: If the sales price you are offered falls short of the amount you owe the lender, then you need to get permission from your lender to accept a lesser amount than you owe. In most cases, a lender is not likely to sue for a deficiency; they give you debt forgiveness. They mark your credit report as settled, which helps you by not having the foreclosure on your credit report. My staff and I have helped 32 families achieve short sales in the last 12 months.

This is by no means intended to be legal or tax advice.

HOW FORECLOSURE WORKS

Homeowners first receive a letter from the lenders lawyer that says they have 30 days to dispute that the mortgage is in arrears. Although a lender can declare a default one day after a missing payment, realistically, you have got to be three months behind before they do anything.

After the 30 days has passed assuming the homeowner does not dispute the default or otherwise show that all payments have been made the lender files a lawsuit and sends a summons. The homeowner then has 20 days to respond. Filing an answer to the summons will slow down the foreclosure process. Your attorney will need to do this for you. If the homeowner does not respond, a default judgment is filed with the court.

After a 10-day waiting period, notice of a sheriffs sale begins. The notice must be published once a week for three weeks in a newspaper in the same county as the home. The sale typically takes place the fourth week.

Typically, the first bidder is the mortgage company. More often than not, they will bid the amount of the debt that relates to the mortgage. If no one else bids, the lender gets the house and can then sell it. The homeowners debt is then paid. If someone else bids on the house, they get it and pay off the mortgage.

The homeowner, however, stays in the home after the sale during what is called a redemption period. Under state law, the homeowner has a minimum of 90 days to buy back the house with a new loan or cash. You may continue to live in the home for this 90 day period.

-Deb Gruver, The Wichita Eagle-

What is Foreclosure?

Foreclosure is the legal right of a mortgage holder or other third-party lien holder to gain ownership of the property and/or the right to sell the property and use the proceeds to pay off the mortgage if the mortgage or lien is in default. It is a concept that has existed for centuries.

Initially, the law had it that a mortgage default resulted in the automatic ownership of the property by the holder of the mortgage (sometimes referred to as the mortgagee). But the law developed over the years so as to allow mortgagors time to pay off mortgages before their property was taken away. This process of taking away the mortgagor's property because of default is what constitutes foreclosure.

Today, numerous state laws and regulations govern foreclosure to protect both the mortgagor and the holder of the mortgage from unfairness and fraud. In the United States, although states have their own variations, the basic premises of foreclosure law remain the same.

Types of Foreclosure

The mortgage holder can usually initiate foreclosure anytime after a default on the mortgage. Within the United States, there exist several types of foreclosure. Two are widely used, with the rest being possibilities only in a few states.

The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Because it is a legal action, all the proper parties must be notified of the foreclosure, and there will be both pleadings and some sort of judicial decision, usually after a short trial.

The second type of foreclosure, foreclosure by power of sale, involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. The majority of states allow this method of foreclosure. Again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it is only available in New Hampshire and Vermont.

Acceleration

The concept of acceleration is used to determine the amount owed under foreclosure. Acceleration allows the mortgage holder the right when the mortgagor defaults on the mortgage to declare the entire debt due and payable. In other words, if a mortgage is taken out on property for $10,000 with monthly payments required, and the mortgagor fails to make the monthly payments, the mortgage holder can demand the mortgagor make good on the entire $10,000 of the mortgage.

Virtually all mortgages today have acceleration clauses. However, they are not imposed by statute, so if a mortgage does not have an acceleration clause, the mortgage holder has no choice but to either wait to foreclose until all of the payments come due or convince a court to divide up parts of the property and sell them in order to pay the installment that is due. Alternatively, the court may order the property sold subject to the mortgage, with the proceeds from the sale going to the payments owed the mortgage holder.

What happens:

When the foreclosure sale is not enough to satisfy the amount of the mortgage, the mortgage holder may bring a deficiency judgment against the mortgagor to make up the difference. For example, a mortgage holder of a $10,000 mortgage, who only receives $8,000 in a foreclosure sale, may sue the mortgagor for the remainder of the amount due under the mortgage.

Deficiency judgments are tempered in many jurisdictions by "fair value" legislation. This requires the deficiency to be calculated using the difference between the mortgage debt and the fair value of the real estate. In the above example, a court in a fair value jurisdiction might determine that the fair value of the property was $9,000. In that case, the mortgage holder could only obtain a deficiency judgment of $1,000.