What is Foreclosure?
In this article, we will take a look at what foreclosure is and how the process works in Massachusetts.
So, what exactly is a foreclosure and how do you avoid it? Are there any specifics you need to know about the process and paperwork involved? And – of course – are there any alternatives?
In this “Definitive Guide to Foreclosure in Massachusetts,” we’re going to answer all of those questions and more.
First, let’s start with the simple one, “What is foreclosure?”
Foreclosure is the legal process whereby a lender takes control of a property, kicking the borrower out because he or she wasn’t able to make payments on the mortgage, and then the lender resells the property.
Put frankly: the bank takes your house.
You see, you don’t really own a house until you’ve paid off your mortgage in full. Instead, you’re just kind of borrowing it. Legally, the bank still owns your house. If you stop paying your mortgage, the bank takes your house away.
But how does that happen, exactly? Why would someone stop paying their mortgage? Well, there are a number of reasons people end up in foreclosure.
Reasons Why People End Up in Foreclosure
According to the Mortgage Bankers Association, 1 in 200 homes will be foreclosed upon. It helps to know a lot about foreclosure, though, because that same document reports that 6 in 10 people wished they had known more about the terms of their mortgage.
But there’s more to it than that. Any one of these factors could effectively cut your income in half:
- Loss of a job
- Health issues
Maybe the mortgage was affordable on two incomes, but not one. If you just lost a dearly beloved spouse, you probably have other things on your mind than the mortgage – but, unfortunately, that won’t make any difference to the banks.
Furthermore, any sort of mounting expense could end up taking a big enough toll on your finances, barring you from making your mortgage payment. That could means things like:
- Revolving credit card debt
- Medical bills
- Rising interest rates
That last bullet-point is an important one. A major reason that people end up in foreclosure has to do with the terms of the mortgage itself – and the economy at large. We saw this happen on a major scale during the subprime mortgage crisis in 2008, but it happens on a smaller scale every single day across America.
A Theoretical Example of Foreclosure
Let’s say that you found your dream home right out of college: a big three-bedroom, two-bathroom in a pristine neighborhood in Cambridge. It’s slightly out of budget (you and your loved one’s income only totals $60k, but the house you bought is worth $1.2m – not too far outside the median home value in Cambridge) and since you don’t have much of a credit history outside of a couple missed payments on your student loans, you can’t qualify for a traditional mortgage. However, the bank promised you a super low interest rate through a subprime mortgage. After doing the math on your monthly budget, you figure out it’s just as good as qualifying for a traditional loan, so you sign the dotted line.
Two years in and everything seems to be going smoothly: you’re making payments on time and you’re really enjoying the new house. The problem with subprime mortgages, though, is that they can have very shaky interest rates, high one year and low another. In your third year of home ownership, the economy takes a nosedive; as a result, your mortgage payment skyrockets to more than you and your loved one make in three months.
If you’re really unlucky – like a lot of people were in 2008 – your mortgage might end up costing more than the actual value of your house. After you fail to make a payment or two, you’ll find that, because of late payment fees and ever-increasing interest rates, you’re fighting a steep uphill battle to keep your home.
The Foreclosure Process in Massachusetts
The foreclosure process depends on the terms of your mortgage, which can vary from loan to loan. When in doubt, always check your mortgage.
With that said, there are certain requirements when it comes to foreclosure in Massachusetts. As such, there’s a timetable that’s somewhat set in stone:
- You forget to make your mortgage payment past the grace period (typically the 15th of every month). You start getting calls and letters from collections agencies.
- The lender sends you a “Right to Cure” notice. At this point, the bank is essentially giving you a second chance. They’re saying that you have 150 days to repay the loan and all will be forgiven. (You’re “curing” the default).
- The lender can shorten that period from 150 days to 90 days if they have a face-to-face meeting or telephone call with you to discuss alternatives to foreclosure.
- After your second grace period is up, the bank will send you an “Acceleration Notice” notifying you the loan is due in full. This acceleration notice needs to be sent 21 days before the foreclosure sale.
- Also, 14 days before the foreclosure sale, you’ll receive a “Notice of Foreclosure Sale” in the mail.
- After the sale – which has to be published in the newspaper – you don’t have to move immediately, but the bank can now issue an eviction notice.
- After the new owner or bank has an eviction notice issued by a Court Order, they can force you out of your home.
- You always have the right to ask the court for more time in your home. If you’re being evicted because of the death of a loved one or serious medical issues, you just might be granted extra time.
If you want to know more about the exact timetable and documents that are involved, Massachusetts Legal Help has a fantastic guide.
As you can see, between the 15 day grace period before missing your first payment, the 150/90 day right to cure default notice, the acceleration notice, and the notice of foreclosure sale, you have plenty of time to avoid foreclosure or find an alternative.
You just have to know how.
How to Stop a Foreclosure (What are the alternatives?)
When is it too late to stop a foreclosure? After your home is sold. Once the deed is in someone else’s name, nothing else really matters.
Before that happens, one option is loan modification. Going back to our example, if you can explain to the lender that the only reason you can’t make payments is because of the high interest rates, you might be able to convince them to agree to lower monthly payments – thus enabling you to keep your home. This is called “loss mitigation.” It’s when both the borrower (you) and the lender (the banks) work together so you no one has to foreclose (because that can often be even more expensive than readjusting the terms of the mortgage).
How do you file for a loan modification in Massachusetts? We’ll lay it out for you. But if this all sounds hopelessly confusing, keep in mind that you could always talk to a housing counselor. This way you’ll have a representative on your side to help you explore all of your options, even if you don’t technically need one. All of this information is a lot to take in at once, and if you’re busy being foreclosed upon, it can be even harder to find the time to sit down and sift through it all. There’s no shame in asking for help.
With that said, here’s how you would go through the loan modification process on your own:
- First, contact your servicer’s loss mitigation department. For example, if Wells Fargo, one of the biggest mortgage servicers in the country, supplied your mortgage, you would start by visiting the Wells Fargo Loss Mitigation website and filling out a form.
- On this form, you’ll put your personal information, mortgage information, and property information as well as financial information such as a W-2, pay stubs, bank statements, tax returns, and so on.
- A quick FYI: your monthly mortgage payment needs to be no greater than 31% of your total pre-tax monthly income.
- Next, the banks can’t sell your home before making a decision on your application.
- If it’s denied, you’ll still have 30 days before the auction sale.
- Finally, though, make sure to document everything so that you can ensure the banks play by the rules. If you catch them in a lie, you can always file a lawsuit. Otherwise, if you have no documentation of anything that you claim happened, it’s your word against theirs, and since they have the best lawyers money can buy, they’re probably going to win.
Next, what about forbearance? What is it and how does it work?
Forbearance is when the lender makes an agreement to not go through with the process of foreclosing because the borrower agrees to a payment plan. In that way, it’s pretty much the same thing as loan modification, except it used to be possible for the banks to continue to go through with a foreclosure even if a loan modification was in process. It’s called “dual tracking,” but courts across America are quickly picking up on it and making it illegal.
So, what else do you do if you want to stop a foreclosure auction immediately? Well, one option is filing for bankruptcy. Bankruptcy can immediately stop foreclosure.
(Keep in mind, though, that this site is called “Pavel Buys Houses” – not “Pavel Is a Foreclosure Attorney.” We stress that if you go this route, you should contact the proper legal aid.)
For the sake of informing you, though, there are two types of bankruptcy that you can file for:
- Chapter 7 Bankruptcy: the trustee takes all of your assets (anything you own of value) and sells them to pay off your debts. In many cases, even when you have a huge credit card bill, Chapter 7 bankruptcy can give you a fresh start. It isn’t, however, the best route if you want to keep your house.
- Chapter 13 Bankruptcy: this type of bankruptcy is a little different; it offers people with regular incomes a restructuring plan to pay off their debt. Essentially the lenders will make a plan for you to repay them over the next three to five years. Even if you end up defaulting on these payments as well, Chapter 13 bankruptcy will probably buy you the most time before a successful foreclosure sale.
Short Sale vs. Foreclosure
Short sales are another option if you’re a borrower who has fallen behind on your mortgage, but how are they different from foreclosures? We have a guide right here, but we’ll summarize it for you on this page, too.
Remember earlier, when we were talking about the financial crisis, we said that there were people who owed more on their mortgage than their homes were worth? As long as the economy isn’t going through another crisis, one way to mitigate that difference between your mortgage and the home’s market value is through a short sale.
If you have $500k on your mortgage but you hire an appraiser and find out that your home is now valued at $430k, you can negotiate a short sale with your lender, who will then forgive you for the $70k (but the lender will still put your house on the market).
Foreclosures, as we’ve learned in our “Definitive Guide to Foreclosures in Massachusetts,” are the legal process whereby a lender forces a borrower out of his or her home and then sells that home.
They’re two completely different processes. In one, the lender is agreeing to let the borrower sell their home for less than they owe on the mortgage; in the other, the borrower is usually trying to keep their home, but they can’t afford to make they payments.
Frequently Asked Questions
Below we have outlined the most frequently asked questions (FAQs) related to the Foreclosure process.
Once foreclosure starts, can it be stopped?
Yes, even if your bank starts foreclosure proceedings, you can stop it. You’ll have to act fast, though. A few methods to stop foreclosure include:
- File for bankruptcy – When you file for bankruptcy, there is an automatic stay that goes into effect. This halts any creditors from taking any action against you, including banks initiating foreclosure proceedings.
- Apply for a loan modification – If you act quickly, you may be able to get a loan modification from your bank. If the bank approves your modification, they have to stop the foreclosure proceedings, by law.
- Sell your home to a cash buyer – If you don’t want to keep your home, but want to avoid the foreclosure from hitting your credit report, you can sell the home ‘as is’ to a cash buyer. If you pay off your mortgage, you’ll avoid the foreclosure from affecting your credit.
Can the government help stop foreclosure?
The federal, state and local governments offer foreclosure assistance programs. Some programs are strictly housing counseling that helps you understand your options, while others offer mediation, financial assistance programs, and mortgage modification programs that help homeowners avoid foreclosure.
How can you stop a foreclosure at the last minute?
The best two ways to stop a foreclosure at the last minute include:
- File for bankruptcy – The minute you file for bankruptcy, the bank can’t take action against you any longer. Some banks may file a waiver to get around the requirement, but most will stop the proceedings because of the BK.
- Apply for a loan modification – Banks can’t dual track your loan, which means they can’t go through with foreclosure proceedings and qualify you for a loan modification at the same time. If you apply for a modification, they have to stop the proceedings for the time being.
Can a lawyer stop foreclosure?
Yes, a lawyer can stop foreclosure, if you have reason to believe the bank didn’t operate ethically. A lawyer can’t just stop foreclosure because you don’t want to leave the home. However, a lawyer can help you file a suit against the bank if they didn’t follow the proper procedures to start foreclosure proceedings or the bank starting the proceedings isn’t even the bank that owns your mortgage.
Does filing bankruptcy stop foreclosure?
If you are nearing the foreclosure date and can’t catch up on your mortgage, you can file an emergency bankruptcy petition. This form of bankruptcy only requires you to complete a few forms and take a credit counseling course. Your foreclosure stops immediately after you file, but then may resume depending on the outcome of the bankruptcy. Typically filing Chapter 13 BK is the best way to stop foreclosure for good and still allow you to keep your home.
How can you stop eviction after foreclosure?
The state you reside determines your options for stopping eviction after foreclosure. Depending on where you live, you may be able to:
- Use a statutory redemption – If you can pay off the balance of the loan plus any accrued fees, you can regain homeownership
- Voluntarily move out – If you don’t want an unlawful detainer judgment on your credit report, you can voluntarily move out before the eviction date
Can loss mitigation stop foreclosure?
Yes, you can file a loss mitigation claim with your lender to stop the foreclosure process. In the loss mitigation process, the lender will try to work with you to catch up on your payments and avoid foreclosure. This is more beneficial for lenders since the foreclosure process is extremely expensive for them.
Are there loans to prevent foreclosure?
There are loans to prevent foreclosure, but they are typically very costly and not a good idea. The most common loan is the ‘foreclosure bailout loan’ which helps struggling homeowners avoid foreclosure. You don’t need great credit, but you do need a decent amount of equity in the home and you’ll pay a high-interest rate.
How can you stop a property tax auction on your home?
If you are three years or more behind on your property taxes, the county can foreclose on your home. The only way to stop the property tax auction is to pay your past due taxes in full or to ask the county for a payment arrangement that satisfies the debt in a timely manner.
Can you stop the bank from taking your home?
If you don’t make your mortgage payments, it’s hard to stop the bank from taking your home, but you do have a few options:
- Deed in lieu of foreclosure – You can hand over your property deed in exchange for the lender wiping out the mortgage. While you can’t stay in the home, you won’t have a foreclosure on your credit report
- Short sale – The bank may agree to settle your mortgage for less than its balance by accepting a lower sales price. You lose the home, but don’t have a foreclosure on your credit report.
- Loan modification – If the bank will modify your mortgage, you can keep the home and have new, more affordable payments.
- Reinstatement – With the help of an attorney, you may be able to get the bank to reinstate your mortgage at its previous amount and allow you to keep your home if you can afford the payments
Can you stop foreclosure by paying the past due amount?
You may be able to stop foreclosure by paying the past due amount, but you also have to pay any accrued penalties and fees. Typically, you have to do this five days before the bank’s deadline in order to stop the foreclosure process.
What are the effects of foreclosure?
Aside from the fact that you lose your home, a foreclosure can damage your credit score. The average person loses 85 to 105 points on their credit score when they go through a foreclosure.
How long can you stay in the home once foreclosure proceedings start?
Typically, you have around six months to one year before the bank will evict you from the home. Each bank has its own timeline, but it’s typically less than one year.
Sell Your Home For Cash
An even faster and simpler option is to sell your home for cash. You’ve probably seen billboards and online ads of companies and people advertising that they buy houses for cash (you might, for example, be reading a guide to foreclosure on PavelBuysHouses.com).
How does it work exactly? Well, you can avoid paying a real estate agent a listing fee, attending open houses, and essentially doing all of the time-consuming things involved in selling your house, by telling us about your situation. We have enough capital to afford your house right now. If you’re in dire financial need, we can buy your house in less than a week and take some of the pressure off.
Our goal is to empower you to take control of your situation, and we can only do that if we know what’s going on.
Alternatively, we can also help you keep your house by setting you up with the right federally funded and state funded programs. We’ve seen a lot of people go through foreclosure, and we know it’s best to stay informed about all of your possible options.
We hoped you learned a thing or two about foreclosure today, and if you’re in the process of foreclosure, remember that it’s best to keep an idea of all of your options.
If you want a more personal touch, make sure to contact us. We can help.