If you are facing the possibility of foreclosure, you probably have many concerns. You are likely to be worried about the details of the foreclosure process in addition to more personal considerations such as where you are going to live and how you will repair your credit in the years to come. It is not unusual for homeowners in foreclosure to believe that they will be lucky to get through the proceedings without owing anything additional on their home. Depending on the circumstances of your situation, however, your lender might actually owe you money when everything is all said and done.

Balancing the Numbers

As a homeowner, you probably know that foreclosure is the process that a lender will use to reclaim your home if you fail to make your agreed-upon payments. During foreclosure, you will be given notice to vacate the property, and the home will be sold at a sheriff’s auction. The proceeds of the sale are then used by the lender to satisfy the remaining balance of the mortgage loan. What happens next will depend on the situation.

If you currently owe more on your mortgage than what your home is worth, the proceeds of the sheriff’s sale are unlikely to be enough to cover the full remaining balance. The amount remaining after the proceeds of the sale are applied is called a deficiency. Unless you have negotiated with the lender in advance, you will almost certainly be responsible for paying off the deficiency amount.

In the state of Illinois, foreclosure proceedings are handled entirely through the court system. Known as judicial foreclosure, the process is governed by the normal rules of civil procedure, just as any other civil lawsuit would be. In other states, non-judicial foreclosure is sometimes an option. A non-judicial foreclosure means that language in the mortgage agreement gives the lender the right to seize and sell the home in question if the borrower fails to make his or her payments.

While the primary difference between judicial and non-judicial foreclosure is whether or not the court is involved, this difference has led to other issues. For example, does a mortgage loan constitute traditional debt? What about the lawyers who represent the lenders during foreclosure? Are they considered to be debt collectors? Earlier this year, the United States Supreme Court weighed in on these exact questions in a case entitled Obduskey v. McCarthy Holthus LLP.

The Background

In 2007, a Colorado man took out a secured mortgage loan in excess of $325,000. Two years later, he defaulted on the loan, and the lender hired a law firm to assist in non-judicial foreclosure proceedings, as permitted by Colorado law. The man received a from the law firm indicating that foreclosure proceedings were being initiated and that the notice was compliant with Colorado law as well as the federal Fair Debt Collection Practices Act (FDCPA).

As most people know, regardless of whether or not they have ever owned a home, foreclosure is the process that lenders use to reclaim a home from a borrower who has violated the terms of the mortgage loan agreement. The most common violation, by far, is the failure to make monthly payments as specified in the loan paperwork.

Foreclosure can be frightening, not to mention long and confusing for the average person, and it is easy to make mistakes when facing difficult circumstances. If you are seriously delinquent on your mortgage payments and foreclosure has become a possibility, you will want to avoid some common mistakes.

Mistake #1: Ignoring Letters and Calls From Your Lender

Under Illinois law, your lender cannot begin foreclosure proceedings until you are at least 120 days behind on your mortgage. In the meantime, your lender will probably start sending you letters and calling you to remind you that you are approaching default status. Taking these calls and responding to the letters will be uncomfortable, for sure, but ignoring them is not a good option. Your lender may have alternatives to foreclosure available that you would never learn about by avoiding their calls. In some cases, avoiding contact with your lender could even encourage the bank to push foreclosure proceedings along faster once you reach the 120-day point.

Falling behind on your mortgage can be a source of tremendous anxiety. Most homebuyers are fully aware that failing to make mortgage payments will eventually result in the lender foreclosing on the loan, seizing the home, and selling it at auction. If you are currently struggling to stay current on your mortgage payments, or if your lender has initiated foreclosure proceedings, you might be able to negotiate a short sale, which could allow you to avoid several unpleasant realities.

What Is a Short Sale?

In simple terms, a short sale is the sale of property for a price that is less than what the owner owes on his or her mortgage. Before a short sale can be completed, the lender must agree to the sale. Additionally, in most cases, the lender will agree to accept the proceeds of the sale and forgive any shortfall between the sale price and the remaining balance of the mortgage. For example, if you have $200,000 left on your mortgage but the most you could get for your home right now is $175,000, you would be $25,000 “short.” You would need to convince your lender that this is the best you can do so that the lender will agree not to come after you for the remaining $25,000.

Benefits of a Short Sale

It is important to understand that the logistics of a short sale are much like those of any other residential real estate transaction. You, as the owner, are responsible for getting the house listed, inspected, repaired, etc.—just as you would be if you were not upside down on your mortgage. While this might seem overwhelming, it also means that you are in control of the sale. You get to choose the offers to which you respond and, ultimately, who buys your house. In doing so, you get sell your home with respect and dignity while avoiding the dreaded stigma of foreclosure.

If you are behind on your mortgage and in danger of losing your home to foreclosure, it is understandable that you might be confused, overwhelmed, and uncertain about how to proceed. Unfortunately, there are many unscrupulous individuals who are more than happy to take advantage of you in the midst of your vulnerability. A qualified foreclosure defense lawyer can help you identify and avoid potential foreclosure scams before things get even worse for you and your family.

Companies That Come to You

When a person or company contacts you about your pending foreclosure, it means that they have something to sell you. Scammers keep up to date on foreclosure listings and reach out to desperate homeowners who are simply looking for any help they can find. Aggressive marketing and sales calls are often indicators that someone is trying to make quick money—possibly at your expense.

High-Pressure Situations

A foreclosure typically takes several months to complete, if not longer, but you might have a “foreclosure specialist” or “counselor” pushing you to sign paperwork immediately. It is a bad idea to sign any documents that you have not read or that you do not fully understand. You could easily be agreeing to foreclosure fraud without even being aware of what you are doing.