You absolutely should have a lawyer when negotiating a foreclosure. A competent real estate attorney with a reputable background and experience in foreclosures can offer much-needed legal advice. It is important to be informed whether you are trying to save your house from foreclosure or are voluntarily walking away in a strategic default.
Scam Artists
The Federal Trade Commission strongly recommends against so-called "foreclosure rescue firms." The firms are sometimes headed by foreclosure lawyers. Various state attorney generals have filed lawsuits against foreclosure rescue companies after learning that they charged homeowners large up-front fees and never delivered any real services. Some homeowners have been evicted while believing the foreclosure rescue firm was successfully negotiating with the bank when in fact nothing was happening.
Realistic Expectations
A reputable foreclosure attorney can help protect your rights but may be unable to stop foreclosure unless you are willing to file for bankruptcy. The attorney can file frivolous lawsuits aimed at slowing down the foreclosure process, but should be focused more on avoiding the foreclosure through discussions with the lender if that is what you want. If you are voluntarily walking away, the attorney's chief responsibility is warning you about the consequences.
Alternatives to Foreclosure
A good attorney can tell you about various alternatives to a forced foreclosure, such as loan modification. Loan modification allows all the terms of the loan to be changed to make the mortgage more affordable. The interest rate can be dropped and the monthly payment lowered. Missed payments can be tacked onto the end of the loan, and the term of the loan can be switched from adjustable to fixed so that the payments never increase.
Strategic Default
The attorney also can help you avoid financial repercussions from a strategic default. Some people who are able to make their mortgage payments simply decide to walk away when their home dramatically declines in value because of a recession or housing bust. The value of a home can drop by a third or even half if the home was purchased at an inflated price. That and minimum down payments leave some people owing more for their homes than they are worth.
Deficiency Judgment
Lawsuits and judgments are possible in strategic defaults and other types of foreclosure. An attorney can warn about this during the foreclosure process. CNN reports that in many states lenders can file lawsuits to collect money lost when your home is foreclosed and sold at auction. The lender can sue you for any remaining balance after the auction, resulting in a deficiency judgment signed by a judge. The judgment is a court order requiring you to pay the difference in a lump sum or installments. An attorney negotiating your foreclosure should request a written promise from the lender not to file suit against you after the foreclosure is completed.
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