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Below is part one in a series on the Foreclosure crisis that appeared in the the Northwestern suburb newspaper July of 2007.  The information is still fresh today.  I will post the other parts later this week. Enjoy!

Foreclosures – A Nationwide Epidemic

By Dan Chiappetta

If you are having trouble making your mortgage payment, you unfortunately are not alone. It is important for you to understand how the foreclosure process works and steps that you can take to help you keep your home. The first thing you should know is that your bank does NOT want to foreclose on your house. Bill Garland, president of Utah-based Fairbanks Capital Corp says “We do not want anybody’s home. Everyone loses when there’s a foreclosure.” It cost the home owner, lender and the government on average $50,000 to $80,000 (from Business Week May 7^th) to go through the complete foreclosure process.

The good news is that you live in Illinois and Illinois is a Lien Theory State. In Lien Theory states, the home owner holds the title and the lender has a lien (the mortgage) against the home owner. The lender has to go through the judicial process (which usually takes 6 to 9 months) in order for them to take the house. There are two steps in the bank foreclosure process: 1st Step - Pre-foreclosure: Starts when the home owner falls behind 30 days on their mortgage payment. The bank will eventually send a Notice of Default letter which triggers the actual foreclosure process. 2^nd Step - Foreclosures/Redemption Period: The bank files a law suit against the home owner to start the process to take the house. The redemption period is also in effect which provides the home owner the opportunity to keep their home as long as they pay all past mortgage payments and any other penalties, right up to the time the court hears and decides the case. If you are in this situation, you should call the bank’s Loss Mitigation Specialist. You may be able to workout a plan that benefits both sides (i.e. pay a small amount for an agreed period of time) which would allow you to keep your home.

You may be in a situation where you need to sell your house, but you owe more than the house is worth. You may think that you can not sell your house because the proceeds will not pay off the mortgage (this situation is called a Short Sale). Call the bank’s Loss Mitigation Specialist and explain the situation because they may receptive to a short sale. They will check your financial status to make sure you do not have any money that can be used to make up the short fall. The bank may send you a 1099 form for any amount forgiven that must be reported to the IRS as income. If this happens, form 982 can be filed with your tax returns to offset this amount/income (consult with your tax advisor).

The bank may also be receptive to a Deed-In-Lieu of Foreclosure. In this situation you are giving the bank your house and walking away from it. You would only want to do this when you owe more then your house is worth and there is no other workout plan. This will have a negative effect on your credit score but it is not as bad as a foreclosure.

You still could lose your house if you are making all your mortgage payments, but fail to make your tax payments or pay a tradesman for work that has done work on your home. A tax lien or mechanics lien would be filed against your house. The creditor can then decide to file a law suite against you. If they do and win, a court order to sell your house will be given in order to pay the liens against you. You can still keep your house if you pay the liens before there is a judgment against you.

You should contact a HUD – approved counseling organization to get advice on your situation. NeighoborWorks is an approved non-profit organization dedicated to helping people avoid foreclosure (there is no fee charged). They work with the Homeownership Preservation Foundation to support a nationwide foreclosure assistance number (888-995-HOPE). Visit their website at www.nw.org to get more information. Watch out for questionable counseling companies who advertise that, for a minimal fee, they will assist you by hiring a lawyer to defend the foreclosure in court or negotiate lender assistance on your behalf. Call the NeighoborWorks number before you pay, sign agreement or do anything.

Next week – Ways to buy foreclosed property.

Dan Chiappetta is a Broker/Owner of Chiappetta Realty Group servicing the near west suburbs. He is an Accredit Buyers Representative (ABR); e-Pro certified and has received the Chicago Association of Realtors Top Producer Award for 2005 and 2006. He can be reached at 847-542-2076 or visit his website at www.ChiappettaRealtyGroup.com.