More and more California homeowners are playing the foreclosure lottery. However in this game, there doesn’t appear to be any chance of a winning payoff. Possibly the only opportunity is to sit a while longer at the table and enjoy a round or two on the house. But in the end, you will lose and probably lose big.

Who hasn’t purchased a lottery ticket? When the jackpot climbs to over $100 Million, many decide to go against better judgment and plop down $5 for a quick pick. Why are so many California homeowner’s gambling their homes and credit as if it were a $5 lottery ticket?

Is the Threat of Foreclosure a Conditioned Response?

Has the finality of foreclosure ceased to be a threat? With many people in the foreclosure queue, continuing delays, bank moratoriums, refiling of Notice of Defaults and monthly postponements may have convinced consumers that their pending foreclosure is on hold for an indefinite amount of time. What appears to be happening to these homeowners is they have become pawns in a game which allows a short term gain in exchange for a more perilous penalty when the bank finally decides to pull the lifeline of support. The only question is when is the lifeline going to be pulled?

Banks and other lending institutions have lulled the consumer into a false sense of security that something will be done or worked out to keep you in your home, when they should have been actively encouraging homeowners to look for other alternatives. Alternatives that would lessen the negative impact of foreclosure and allow for a planned exit. Anyone ever heard of a short sale? Instead they seem to consider the 15 month moratorium a “gift” that allows the inhabitants to live mortgage free until they deem its time to go ahead and pull the foreclosure trigger.

I look at the number of foreclosures in the Pasadena, South Pasadena and Altadena area’s and I cannot understand why some people lose their home in 6 months while others have been on the list for a year and a half and are once again delayed for another month. Issues involving court decisions and Civil Rights have long focused on Housing Discrimination. Would anyone like to tackle the perceived inequity that so frequently seems to involve the issue that says, “Sorry Mr. & Mrs. Smith but today is your day. However the Johnson’s have another 30 days?”

Time to Quit Postponing the Inevitable

There is a much fanfare and lip service being paid to loan modifications which seem to be generating only a limited number of success. Homeowners receiving a “Notice of Default” are given specific instructions stating that unless the debt is cured the house will be sold to satisfy the debt. That in itself is very definitive. But with extension after extension the message looses its meaning. Homeowners should also be advised to seek out the possibility of conducting a short sale as a more favorable option versus a foreclosure. If banks don’t want to repossess the house, they seem to be doing a poor job of informing their customers of the available options.

But then again, maybe the banks like stacking the odds in favor of the house.

In California we use a deed of trust. Other states may use a mortgage. The deed of trust provides collateral for the debt. There are three parties involved which are the Trustor (borrower), the Trustee (neutral 3rd party) and the Beneficiary (lender). The Trustor transfers the property to the Trustee to hold in trust until the debt is repaid. When signing your documents at the closing table you provide the Trustee the right to foreclose on the property if you become in default.

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The Notice of Default

This document starts the foreclosure proceedings. When a homeowner becomes 60 – 90 days late on the house payment the notice of default is filed. The homeowner is put on notice that unless the debt is cured, the property may be sold at public auction.

Notice of Trustee Sale

This document serves as public notice as to the date, time and place of the trustee’s sale. It cannot be published until at least 90 days after the notice of default has been recorded.

Auction

The property can be sold at auction in as little as 14 days. If it is not sold then the bank becomes the owner.

Is There A Redemption Period?

In a non-judicial foreclosure the debt can be paid up until 5 days before the property is sold. However some articles now state that most lenders will allow the back payment’s to be made up until the gavel falls at auction. By now there may be some hefty late fees and legal fees that may have also accrued.

What Impact Does Foreclosure Have on Your Credit Score?

According to the article from Ray Martin your FICO score can drop from 100 to 250 points. A short sale may produce a less drastic hit to your credit score than a foreclosure. If you happen to find yourself in this unfortunate situation and feel overwhelmed, assistance can easily be found. A real estate professional can help you determine the amount of equity you may or may not have in your home. Once that’s decided, then the other options may become clearer. Unfortunately many people go into ostrich mode and stick their head in the sand hoping the problem will work itself out. It won’t.