If you are going through foreclosure, you probably have many unanswered questions. What do you do now? Can you stay in your home? Why do you still owe money when you have lost your home? In short: what happens after a foreclosure? Eviction is frightening and so is a poor credit rating and possible deficiency judgments that push you even further into debt.
At Foreclosure Prevention of Michigan, LLC, we understand the emotional and financial turmoil you are experiencing. We provide you with knowledgeable advice about foreclosure and its impacts on you. We also fight to help you find the best options available to you to protect your home and your future.
We are here to answer your questions. Contact us today for experienced advice and representation.
Can I Stay in My Home?
People going through foreclosure often ask: how long do I have in my home? The amount of time you can stay in your home depends on many factors, including the type of foreclosure: judicial foreclosure or non-judicial foreclosure (also known as "foreclosure by advertisement").
Usually, the redemption period is six months. This means that you have six months from the time of the foreclosure sale (also known as the "Sheriff's Sale") to the time you must leave your home. During those six months, you can pay off your principal loan balance and interest to regain possession of your home.
What Is a Deficiency Judgment?
Many borrowers believe that, if a bank forecloses on their home, they are not responsible for any of the mortgage debt. This is not always true. If the house sale does not pay off the balance of your loan, your lender may file a claim for post-foreclosure deficiency, also known as a mortgage deficiency judgment.
A deficiency judgment is a court order stating that you are liable for the unpaid balance of the mortgage. Here is an example, if the borrower owes $100,000.00 and the lender accepts a fair market value bid of $75,000.00 at the foreclosure sale, the lender can collect the difference of $25,000.00 from the borrower. This debt is classified as an unsecured debt and can be reorganized and/or partially eliminated through a Chapter 13 or eliminated through a Chapter 7.
What Happens to My Credit After a Foreclosure?
A home foreclosure is more damaging to a credit rating than filing for bankruptcy. You might not be able to get another mortgage for up to four years. Your credit might also continue to be affected by overwhelming debt caused by your home loan. Your first mortgage company might bring a claim for a deficiency judgment. Furthermore, if there was a second mortgage on your home, the second mortgage company has a legal right to collect on the mortgage unless you have gone through the lien stripping process in Chapter 13 bankruptcy.
Should I File for Bankruptcy?
Bankruptcy helps reset and eventually restore your credit. Since foreclosure is damaging to credit, bankruptcy might be the best option to get you back on your feet. Furthermore, bankruptcy may help you keep your home or organize payment on deficiency judgments.
You should consider the amount of debt that you have — including the number of mortgages on your home — while you determine whether or not to file for bankruptcy. The higher your debt, the more likely Chapter 7 or Chapter 13 bankruptcy will help you.
What about the Mortgage Forgiveness Act?
For purchase loans for primary residences, in the years 2007-2009, the IRS will be forgiving taxes based on debt relief. This does not apply to second homes, investment properties and refinances above the original purchase value. If you don't qualify for the Mortgage Forgiveness Act, then there is still the "insolvency" test, if you qualify. Visit the IRS Website for more info.