Unfortunately, foreclosures and short sales don’t appear to be going away anytime soon. The wise REALTOR® will make sure that he or she is prepared to answer consumer questions about these topics.

1. What is the time frame from the time I stop making house payments until foreclosure? What is the legal process? 

• The beginning through the confirmation of the sheriff’s sale in court can run anywhere from approximately four to 18 months.
• Stopping mortgage payments is a serious step because it will have an immediate adverse affect on your credit score.
• Many lenders will begin the foreclosure process by sending a letter warning that they intend to file for foreclosure and then file in court once three to six monthly mortgage payments have been missed. Some lenders may wait a bit longer because of the glut of foreclosures.
• After a few months, the court will hold a hearing and enter a judgment of foreclosure – how much time passes until this happens depends upon whether the owner answers the lender’s complaint, raises defenses or does nothing.
• After judgment there is a period of redemption of anywhere from two months (if the property is abandoned) to 12 months (typical if the property is owner-occupied and the lender seeks a deficiency judgment).
• At the end of the redemption period there will be a sheriff’s sale and anywhere from 10 days to three weeks after that there will be a court hearing to confirm the sale – if confirmed, a sheriff’s deed will be given to the successful purchaser from the sheriff’s sale.
  Be sure to review the Wisconsin Foreclosure Assistance Resource Center and the foreclosure timeline at www.wisconsinforeclosurekit.org/survival_timeline.html.

2. What can be done if a sheriff’s sale is scheduled after there is an accepted offer, but before the scheduled closing date? 

• A seller in foreclosure still owns his or her property and may list, market and sell his or her property up until the court has a hearing confirming the sheriff’s sale (at which time the seller loses the right of redemption). Only then will the title to the property vest in the purchaser from the sheriff’s sale. A seller redeems his or her property by paying the total amount of the mortgage plus interests and costs to the lender before the confirmation hearing.

3. Can I negotiate with my lender to make up payments past due? 

• You should always try to talk to your loan servicer and see what can be worked out!
• Review the Action Steps for those going through foreclosure at www.wisconsinforeclosurekit.org/survival_action.html.

4. What are the HAFA and HAMP programs and how do they affect me? Which program should I consider? 

• HAMP is the Home Affordable Modification Program and HAFA is the Home Affordable Foreclosure Alternatives program for short sales and deeds in lieu of foreclosure. Both are U.S. government programs to provide relief to homeowners experiencing difficulties with their mortgages.
• You have to be considered first for a HAMP loan modification before you can be considered for a HAFA short sale or deed in lieu.
• To be eligible for HAMP, your home must be your primary residence, you must owe less than $729,750 and be experiencing trouble paying the mortgage (must have taken out your mortgage before January 1, 2009) and the payment amount must be more than 31% of your current gross income.
• HAFA won’t apply to loans owned or guaranteed by Fannie Mae, Freddie Mac, FHA or VA but Fannie Mae and Freddie Mac do have similar programs (please see below):
• Fannie Mae HAFA: www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1007.pdf.
• Freddie Mac HAFA: www.freddiemac.com/singlefamily/service/hafa.html.
• HAFA should help short sales run on a more timely schedule because it provides uniform procedures, forms and timelines.

5. How can I tell if my loan is eligible for HAMP or HAFA or if it is a Freddie Mac or a Fannie Mae mortgage? 

• The test for eligibility for a HAMP/HAFA is at http://makinghomeaffordable.gov/eligibility.html.
• The test for eligibility for a Fannie Mae loan is at: www.fanniemae.com/loanlookup/ or call 1-800-7FANNIE (8 a.m. to 9 p.m. Eastern Time).
• The test for eligibility for Freddie Mac loan is at https://ww3.freddiemac.com/corporate/ or call 1-800-FREDDIE (8am to 8 p.m .EST).

6. If I am doing a short sale, should I accept any offer and let the bank come back with a price or should I negotiate with the buyer and risk losing them? 

• The listing agent should determine the lender’s policy regarding offer submissions and price.
• In HAFA short sales the loan servicer lets the seller and listing broker know what price would be required before marketing begins.
• Your broker should be able to help you and the lender decide if an offered price is a good one by providing comps and local market conditions.

7. Will a short sale affect my credit? 

• The impact of a short sale may be no different than a foreclosure or a deed in lieu of foreclosure because in the eyes of the lender the end result is the same: you missed several payments and you are being released from your mortgage without paying the full balance due. Once you are more than 90 days behind in your mortgage payments, your credit score will likely take a steep drop.
• There are so many variables involved, including what your credit score is to begin with, that predicting a specific number of points by which a given credit score might drop is purely speculative. One report explaining possible impacts can be found at http://money.cnn.com/2010/04/22/real_estate/foreclosure_credit_score/index.htm
• You may be able to get another mortgage sooner with a short sale as compared to a foreclosure, depending upon the loan program and factors such as loan-to-value ratios and extenuating circumstances.

8. Will I have to pay any money to the lender if I short sale my home or go through foreclosure? 

• That depends. In a short sale, the lender may forgive the remaining amount owed on the mortgage after the short sale or they may still try to collect this amount with a promissory note, etc. In HAFA, the deficiency must be forgiven. The amount forgiven may be taxable on your income tax returns but the Mortgage Forgiveness Debt Relief Act of 2007 may allow you to avoid those taxes. Visit the Internal Revenue Service  website at www.irs.gov/individuals/article/0,,id=179414,00.html to learn more.
• In a foreclosure, the lender may elect to pursue a deficiency judgment, which means a 12-month redemption period. If they do not, then there is only a six-month redemption period.

9. I heard that filing for bankruptcy will stop the foreclosure. For how long? What happens if I get an offer after I file? Can I still sell the house? 

• Filing for bankruptcy does not mean that homeowners can necessarily save their homes. Generally, it is just a temporary stall tactic. Homeowners can stop a foreclosure by filing a Chapter 7 bankruptcy, but the lender soon receives permission to continue with the foreclosure. It may still be possible to sell your home with the consent of the bankruptcy trustee who takes control of your assets.
• Homeowners who file for Chapter 13 bankruptcy may be able to save their house. Homeowners with equity in their homes but who are unable to pay their mortgage because of other debt derive the most benefit from a Chapter 13 bankruptcy. Under Chapter 13, a homeowner follows a debt reorganization and payment plan approved by the court. The plan eliminates interest payments and schedules affordable principal payments to eliminate all non-mortgage debts within three to five years. Homeowners make one monthly payment to a court-appointed trustee, who in turn pays the various creditors, and must continue making mortgage payments. Any arrears in mortgage payments when a homeowner goes into Chapter 13 will be added to the other debts that are consolidated. This is so even if the lender is foreclosing, as long as the house has not been sold. Entering Chapter 13 stops the foreclosure process, but the homeowner must make regular mortgage payments.
• See Bankruptcy Basics at www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics.aspx.

10. What is the impact of a bankruptcy on my credit? 

• Bankruptcy causes the most dramatic drop in your credit score and will remain on your credit report for 10 years
  Consumer Tip: Each homeowner should get help from a reputable counselor or advisor and then take action to do what is best in his or her particular circumstances.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.