Frequently Asked Questions About Foreclosures
Authored By: Colorado Legal Services
Foreclosure - Frequently Asked Questions
What is a foreclosure?
Foreclosure is a legal term used to describe when a creditor who holds a mortgage on your home is requesting that it be sold in order to satisfy or repay amounts that are past due.
The most common reason that a foreclosure occurs is for failure to make payments in accordance with the terms of a promissory note. As a result, you (the homeowner) lose the rights to the property that you own. A foreclosure can also seriously affect your ability to qualify for credit in the future.
In Colorado, the most common form of foreclosure is through the Public Trustee. The Public Trustee is an appointed official whose job includes conducting foreclosure sales. Less common in Colorado is a judicial foreclosure, which is most commonly utilized in situations involving recovering delinquent assessment liens owed to homeowners associations.
Does the mortgage company have to wait until I am behind a certain number of months before they can start foreclosure?
If your mortgage is subject to the Real Estate Settlement Procedures Act, or RESPA, then it cannot initiate a foreclosure until a mortgage loan account is more than 120 days delinquent. Most mortgage companies are subject to RESPA, though if not (your loan is privately financed), then the lender would not have to wait such period.
What should I do if I fall behind on my mortgage payments?
If you cannot make your mortgage payments, the first step in avoiding foreclosure is to talk with your mortgage lender. You may ask for time to catch up on your delinquent payments or for reduced payments. Many lenders are willing to enter into some type of repayment agreement if you fell behind on your payments due to an unforeseen crisis or hardship.
It is important that you do not ignore the letters you are receiving from your lender. If you are having problems making payments due to losing your job, immediately call or write your lender(s). Most lenders have a Loss Mitigation Department that deals with borrowers who are behind on their payments.
You may wish to contact a HUD-approved housing counseling organization for assistance in attempting to communicate with your lender. If you wish to find a housing counseling organization, you can call the Colorado Foreclosure Hotline at 1-877-601-HOPE (4673).
HUD-approved counseling organizations will not charge you for their services and are trained to help borrowers enter into workouts with the lender. Beware of companies that claim to help people with loan modifications for a fee, since many of them are not regulated at this time, and they may end up doing you more harm than good.
When you contact your lender, you should explain your situation and be prepared to provide them with financial information, such as monthly income and expenses and an explanation of the circumstances that caused you to fall behind on your payments. Without this information, they may not be able to help.
It is also very important for you to stay in your home for now because you might be able to qualify for additional assistance. However, if you abandon your property you may not be able to qualify for additional assistance.
Lastly, try to seek any additional assistance that you can qualify for. For a list of additional options and assistance that may be available to borrowers with FHA-insured or VA-insured mortgages, see the question below on FHA/VA options. Also,if your loan is owed by Fannie Mae or Freddie Mac, then there may be some loan workout options available to you under their guidelines. If you cannot qualify for additional assistance, then you may have to consider selling your house if you do not believe that your financial situation will improve.
If you have fallen behind on your mortgage payments, it is likely that your lender will refuse to accept any payments that you send that do not fully bring the loan current, including late fees and costs. If you send a payment to your lender and the lender returns it to you, it is recommended that you set aside your mortgage payments in the safe place because it is possible that you might need the money to cure the arrears (pay the debt) or the lender may request as a condition of a workout that you pay them a certain amount of money.
I got a foreclosure notice - what should I do?
If a foreclosure starts you will receive notices from two different sources: One set of notices will be sent to you by the Public Trustee of the county where your home is located. The other set of notices will be sent to you by the attorney who is representing the lender with the foreclosure. The notices from the Public Trustee will tell you the date of the foreclosure sale and advise you of your rights pursuant to the foreclosure statute. You will also receive some court papers from the foreclosing lender's attorney. These papers will refer to a motion that is being filed by the lender asking the District Court of the county where your house is located for an order authorizing the foreclosure sale. This is typically referred to as a Motion under Rule 120.
You have 7 days prior to the date set for hearing in which to file a response with the court. If you do not file a response 7 days prior to the hearing, the order will be entered authorizing the sale, even if you appear at court. In most cases, the court will generally only decide on the issue of whether you are in default under the terms of your mortgage, i.e. whether you fell behind in your mortgage payments. If you dispute that your lender has the right to foreclose on the house and you dispute that you are in default for other reasons, then you should consider filing a response.
There is a filing fee for filing a response to a motion under Rule 120, though this fee might be waived by the court if you have a low income. You can request that the court waive (not require) a filing fee by completing a Fee Waiver request form. Go here to find the correct forms on the Colorado Judicial Branch website.
In order to determine whether you have a defense to a lender's motion under Rule 120, we stongly urge you to seek the assistance of an attorney.
I got a foreclosure notice and now an investor has approached me about helping to save my house. What should I do?
Beware! Many of the people who will contact you are out to make money from your situation and are looking for ways to get at the equity that you have in your house. For this reason, you should be very cautious about dealing with individuals who contact you with an offer to help while your house is in foreclosure. In many instances, a person will contact you and offer some type of foreclosure relief or offer you some type of solution that they state will allow you to remain in your house. For example they might say, "we may be able to save your house from foreclosure". You should be very skeptical of promises! In most circumstances, entering into such an agreement could not only ensure that you will lose your home, but also could result in you losing all of the value or equity in your home.
There are many foreclosure "scams" that exist. Examples of such foreclosure "scams" include a proposal where you agree to sell your property to an investor or other person and they lease it back to you with a promise to let you buy back the house at some point in the future. Often, the person or company does not put the agreement (in this example, called a "sale/lease-back" option) in writing or they may instruct you to sign papers that are different from what they tell you when they first meet you. If they do put the agreement in writing, it is important that you not sign the document until you have someone review it, preferably an attorney. If the person insists that you sign immediately, or does not want to give you copies of the agreement to review at your leisure nor provides you with an address or telephone number or any other information about themselves, be extremely cautious about doing business with that person!
Another scam is where the person will ask you to sign a document called a "deed," which can be either in the form of a Quitclaim Deed or Warranty Deed. If you sign either of these, you may be giving up all your rights of ownership in the house. Never sign a deed unless you understand that you are giving up your ownership of the property.
If my house is in foreclosure, am I required to move out?
No, not unless the hosue goes to foreclosure sale. It is very important to remember that you are still the owner of your home, even if it is being foreclosed. A foreclosure takes time to run its course, often at least 4 months.
Once a foreclosure sale has occurred, you are no longer the owner of the house. After the Public Trustee sale, a holder of a lien that is junior to the lien that is being foreclosed may be able to redeem, or pay the amount that was bid at the sale, in order to keep its rights in the property.
Once all the redemption periods have ended, or if there is no redemption period, at the close of business eight business days after the sale date, then a deed to the property will be issued by the Public Trustee to either the purchaser in the event that no one redeems the property or to the party that redeems the property. Once the deed to the property is issued, then it is likely that you will receive communication from the new owner asking you to leave the property. If you do not leave the property, then the new owner has the right to remove you from the house by filing an eviction action against you.
Should I declare bankruptcy to address the foreclosure?
Possibly, but not in all circumstances. One way to stop a foreclosure is to file a Chapter 13 bankruptcy. A Chapter 13 is a reorganization where the debtor proposes a plan to repay his/her creditors over time. You may be able to keep your home if you can make payments on the past due amounts over a period of up to five years and at the same time make your current mortgage payments as they become due. These payments, of course, would be in addition to of all your every day monthly living expenses. Chapter 13 requires that you have a regular source of income.
Unfortunately, not all individuals will qualify for Chapter 13. Furthermore, to prevent foreclosure, Chapter 13 bankruptcy must be filed before the lender completes the foreclosure sale under state law. Since Chapter 13 can be complicated, you are urged to consult with an attorney who practices in the area of consumer bankruptcy law.
What about my creditors who tell me that they are going to put a lien on my house, can they do that and can they take my house away from me?
If a creditor sues you and successfully gets a judgment from a court stating that you owe him/her money, then the creditor may be able to put a lien on your house in order to satisfy the amount owed. A lien is simply an assurance the creditor receives that you will pay the amount owed to him/her. If a lien is placed on your property and you have not paid the creditor the amount owed, then when you sell your house the amount of the lien will be deducted from the amount of money you receive when you sold your house. The presence of a lien does not mean that you cannot sell your house, only that this lien would have to be paid off at the time you sell the house.
In most cases, a judgment lien will remain on the house until you decide to sell or refinance your house. Though in theory, the holder of the lien has the ability to foreclose on its lien, this is not likely to happen. The holder of a judgment lien will not foreclose in most cases because of the time and costs involved with foreclosure, though certainly debt collectors may try to convince you otherwise.
What if I have an FHA-insured mortgage loan or a VA-guaranteed mortgage loan? Do I have any special options that are available to me that I should know about?
There are some alternatives to a foreclosure that a lender who services an FHA-insured mortgage loan must consider in good faith as opposed to just foreclosing on your home. In order to find out more about these, it is suggested that you talk to a HUD-approved housing counselor.
Some alternatives include:
- Reinstatement: Your lender may be willing to discuss accepting the total amount owed to them in a lump sum by a specific date. They will often combine this option with a forbearance.
- Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time after which another option must be agreed upon to bring your loan current. A forbearance option is often combined with a reinstatement when you know you will have enough money to bring the account current at a specific time in the future. The money might come from a hiring bonus, investment, insurance settlement, or a tax refund.
- Repayment Plan: You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.
If it appears that your situation is long-term or will permanently affect your ability to bring your account current:
Mortgage Modification: If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the following ways:
- Adding the missed payments to the existing loan balance.
- Changing the interest rate, including making an adjustable rate into a fixed rate.
- Extending the number of years you have to repay.
- Claim Advance: If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor (sometimes referred to as a “partial claim”) to bring your account current. The repayment of this loan may be delayed for several years.
If you have a mortgage guaranteed by the Veterans Administration, assistance for borrowers in foreclosure may also include in addition to those listed above, an option called refunding, which is when th VA elects to purchase a loan from the lender and take over servicing responsibilities. This is VA’s final attempt to keep the borrower in their home. Refunds can be considered if VA determines it is in the best interest of the borrower and the government.
If you want to avoid foreclosure of your home, we recommend you contact a HUD-approved housing counselor (click here for a list), or call the Colorado Foreclosure Hotline at 1-877-601-HOPE (4673).
If you have a VA-insured mortgage loan, then we recommend that you, as soon as possible after your second payment is missed, contact the Denver VA Regional Loan Center here. Before contacting the VA, locate your VA loan number (which is different from your mortgage company loan number). The VA loan number is usually located on the settlement papers that you received at your loan closing.
My name is still on a house where I no longer live and now it is being foreclosed. Can I be held responsible?
Perhaps. A house can be foreclosed on whether or not you are living at that residence. If your name is on the mortgage because you have co-signed for the loan, then you can be held responsible for making all payments required under the terms of the mortgage. In addition, you can also be responsible for any deficiency, or whatever amounts that might be owed in the event that the lender is not able to fully satisfy the outstanding loan balance from the sale of the house.
My house is valued at $200,000 and I only owe $100,000. Now it is being foreclosed and will be sold. What happens to my $100,000 equity?
Equity is the money that you would get if you were to sell your house and pay off the mortgages or liens that may be recorded against it. It is possible that you may have equity in your home despite being in foreclosure. However, if your property is foreclosed and you fail to take any steps to protect your equity, then you risk losing the equity in your home.
It is important to note that many of the people who will contact you are out to make money from your situation and are looking for ways to get at the equity that you have in your house. For this reason, you should be very cautious about dealing with individuals who contact you with an offer to help while your house is in foreclosure.
I am in foreclosure and I have tried to sell my house but I owe more than what it is worth. What are my options?
One option is to pursue a "short sale." If you owe less than what is owed on the mortgage, then you can try to negotiate with your lender to see if they will accept less than the full amount so that the house can be sold. This is known as a "short sale." Before you put your home on the market for a short sale, it's best to talk with a tax advisor about possible tax repercussions. It's likely the IRS will consider the difference between the value at which you sell your home and the mortgage balance as "income" on which you'll have to pay taxes. If you wish to pursue a short sale, then you will want to find a real estate agent who understands your situation. Agents typically take a much lower commission on short sales, and it often takes much longer to actually close the sale once the seller accepts an offer. But many agents sympathize with financial problems brought on by unexpected circumstances, and may want to help. Short sales take much longer to close than more conventional sales, so plan accordingly.
The other option would be to stay in the home until the end of the foreclosure, which is when the house goes to foreclosure sale. If you stay beyond the date of the foreclosure sale, you will need to move from the property in order to avoid being evicted.
This communication is made available by Colorado Legal Services, Inc., (CLS), as a public service and is issued to inform not to advise. No person should attempt to interpret or apply any law without the assistance of an attorney. The opinions expressed in this communication are those of the authors and not those of CLS or its funding sources.
If you need advice on this or any other legal problem, consult an attorney of your own choosing. If you cannot afford an attorney, talk to Colorado Legal Services, 303.837.1321.