Handling a foreclosure if one has started

Even if you've gone down the delinquency path and are in the legal process of being foreclosed upon, you may still be able to talk to the servicer to try to work things out or buy yourself more time to come up with a solution or make a more dignified exit from the home. But once again, time is not your friend here, so don't wait!
Get a HUD-approved counselor involved and review loss-mitigation options with your servicer. Most want to help. (Check out "Alternatives to Going Down with the Ship," earlier in this chapter.)

Contact and keep contacting the servicer's loss-mitigation staff until you get a solution you can live with. If they don't offer workable sug- gestions, ask to speak to managers and vice presidents or higher. Now is no time to stand on protocol or accept "I'm sorry" for an answer. See an attorney. Ask for options. Review all the mortgage documents to be sure they were properly drawn and executed. The technical phase used here is "Truth in Lending Compliance". Ask about bankruptcy options and timing so you know all options available to you.

If none of these options works, you will go through the full foreclosure pro- cess. In short, the house will go to auction and be sold. The new owner will give you appropriate notice to leave the house, per your state statute. A notice may be placed on your front door detailing the terms.

Dealing with Deficiencies

When all is said and done, you may still owe some money. If your home sells for less than the amount still owed on the mortgage and fees, you may have what is called a deficiency balance. For example, say a borrower borrows $500,000 from a lender to purchase a home, but the borrower falls behind in payments and the bank forecloses. The home is ultimately sold for $400,000. The $100,000 that the lender lost on the deal is called a deficiency. Current practice is to forgive this amount. At one time this wasn't always the case, and the situation may change again in the future. The most important point is to realize that your problems may not be over when you leave the home. You may need to deal with the IRS if you don't qualify for mortgage debt forgive- ness under their rules.

The following are some potential (and we stress potential) deficiencies you may face and what you can do to deal with them:
The lender asks for a note. Doing so is not a current practice, but be aware of it for the future. This note isn't the kind your mother wrote to school. This note is a promise to pay an unsecured amount to cover the mortgage deficiency after the sale. As with any loan, it has terms, inter- est rates, and payments due on certain dates. Many of these terms can be discussed before the sale takes place and may be modified to fit your situation. Use a lawyer if anyone suggests this solution to you.