Q: What is a foreclosure?

A: Foreclosure simply means the process by which a lender may repossess a property when the borrower defaults on payments. It is one of the most frightening, embarrassing and traumatic experiences an individual or family can endure. And the effect of foreclosure on a person's credit rating and ability to become a homeowner in the future are negative and long-lasting. A foreclosure remains a blight on the borrower's future ability to get a home loan. While other negative credit items may fall off an individual's credit report after 4 - 10 years, the one question that is asked on every mortgage application is "Have you ever had a foreclosure?"

Q: What is the process for foreclosure in Louisiana? 

A: There are two types of court foreclosure processes in Louisiana: executory and ordinary. 

The ordinary process is more extensive and costly, and it works more like a lawsuit. This foreclosure process usually lasts about nine months.

The executory process occurs when a lender uses a mortgage that includes an “authentic act that imparts a confession of judgment” in which the borrower accepts the obligations under the mortgage. This type of foreclosure process moves more quickly and easily, and the ideal timeline is approximately six months. The lender is not required by state law to send any notification to the borrower before beginning the foreclosure process; however, the deed of trust or mortgage may include such a requirement. Either way, once the petition is filed, the borrower is served with a demand for the default amount. If the borrower does not provide the amount within three days, the court orders a writ of seizure and sale, and the clerk delivers it to the sheriff.

Notice of Sale / Auction

The borrower is personally served with the notice of foreclosure sale by the sheriff. The notice of sale is also published two times in a newspaper in the parish where the property is located. The sheriff conducts the sale, and anyone may bid including the borrower. The winning bidder must pay the sale price in cash on the day of the sale, or in some cases, within 30 days of the sale if a 10-percent deposit is made. The sheriff then issues a deed to the winning bidder.

There are no redemption rights for the borrower in Louisiana. 
 

Q: What causes foreclosure in Louisiana?

A: It could happen to anyone in this challenging economy. Unexpected expenses like medical bills are often the culprit. Sometimes people need to move but can't sell because they owe more than the home is currently worth in this down market. Also, the ongoing deterioration of the job market has meant more homeowners are falling behind in their payments due to unemployment. Then there are the Alt-A's (sub-prime mortgages) and Option ARMs that are resetting at higher rates while incomes remain stagnant and home values plunge.

However they got there, countless Louisianans now find themselves unable to make their monthly mortgage payments as promised and therefore are facing the threat of losing their homes or investment properties. 

Q: Why is the Louisiana foreclosure process so fast? 

A: Louisiana is what's known as a Title Theory state, where the property title remains in the hands of the lender until the underlying loan is paid in full. When a person buys real estate in Louisiana with funds borrowed from a lending organization or party, the loan -- also called a mortgage -- is established by two legal instruments: a promissory note or "promise to pay", and some type of title security document. The mortgage creates a lien on the property in favor of the lender. In Louisiana this usually takes the form of a security deed conveying title over the property to the lender, though the borrower retains all the usual rights of ownership  as long as the repayment terms are being met. If payments are not made as stipulated, the lender may foreclose.

Q: What is a Deficiency Judgment?

A: Unfortunately, a foreclosure does not necessarily end a borrower's home purchase debt. In Louisiana, a lender may seek a deficiency judgment against the borrower when the proceeds from a foreclosure sale are insufficient to satisfy the debt. When the court orders such a judgment, the defaulting borrower's other assets may be ordered sold to satisfy the judgment. 

Q: How can I avoid foreclosure?

A: It's a good idea to work with a specialist when so much is on the line. A Certified Distressed Property Expert is your best answer when facing the possibility of foreclosure. Don't walk away from it. Don't just do nothing. It will catch up with you before you know it. Don't spend thousands of dollars and ruin your credit with a bankruptcy. The foreclosure will not disappear that way. Don't sign a Deed in Lieu of Foreclosure. That has the same effect as a foreclosure on your credit. And don't sign a contract with any real estate agent unless they understand completely both the foreclosure and short sale negotiating process.

Get expert help right away, because in Louisiana, you don't have any time to lose. Delaying one day can mean the difference between saving your home and sliding into foreclosure. Remember, you're already in default. Matters can "snowball" on you and completely overwhelm you in just one day. The key besides working with a specialist is to move swiftly and with resolve.

Q: What is a Short Sale?

A: A short sale is a loss mitigation solution. It is the pre-foreclosure sale of a home which is completed through negotiation with the existing lender(s) in which the lender(s) agrees to accept less than the full amount owed to satisfy the debt, allowing the debt to be paid off and settled "as agreed".

For example: You can no longer afford the mortgage for whatever reason -- perhaps the interest reset because it was one of many variable-interest mortgages approved by lenders, or maybe you have to relocate to another city -- so you need to negotiate with the bank to sell the property before foreclosure occurs. You owe $300,000 on your mortgage but the current market value is only $250,000 for your property. Your agent gets a $250,000 offer and negotiates with your lender to accept this lesser amount as payment in full. This is a settlement "as agreed." 

A short sale relieves you of debt and puts you on the road to regaining your peace of mind. 

By the nature of the transaction, you are not going to make a profit on the short sale. You may have extracted equity from a previous refinance of the home, but your current loan balance is higher than the selling value of the home, necessitating the short sale. But the good news is that after a successful short sale you are clear of the mortgage debt and able to go on with your life with a clean slate.

Q: Why are the lenders willing to take such a discount?

A: Quite simply, it will benefit everyone. The seller is relieved of the home they cannot afford. The lender avoids a costly foreclosure and resale proceeding. The buyer purchases the home at an attractive price. The community avoids the blight of another foreclosed property. And the whole transaction brings the market and the economy one home sale closer to recovery.

Banks are not in the real estate business. They are in the money-lending business. They do not like excess inventory and bad loans on their books; therefore, if they see an opportunity to short sell the property without a huge loss, they will do it. Lenders know they could lose a lot more money if the property goes to foreclosure. There are many fees and expenses involved in foreclosing and reselling real property. It is usually in the lender's best interest to accept a reasonable short sale offer.

Q: What will a short sale cost me?

A: That will depend on who you choose to help you with your short sale. If you hire a lawyer or one of the many foreclosure specialty companies now cropping up to "serve" distressed homeowners, you will usually pay a hefty fee. Even more costly, you could fall prey to one of the many scam companies and so-called "investors" currently ripping off unwary homeowners who desperately need a way out of unmanageable debt.

You can save yourself this expense by hiring a real estate agent who is also a Certified Distressed Property Expert. Agents work on commission, meaning no upfront money is required. In most cases, Louisiana sellers pay the real estate agents' commissions. And in the case of a short sale, the bank becomes the seller, so it costs you nothing.

Since you are upside down, owing more on the property than it will sell for in the current market, you will not make any money on the sale of the property; but since the bank is now the seller, you also will not need any out of pocket money for commissions and selling expenses. Rather than costing you anything, a successful short sale will usually save both you and the bank from incurring further expenses.

The word to note here is "successful". There are many, many real estate agents who will represent a distressed seller without the training, expertise and current loss mitigation knowledge to bring the negotiations to a successful close. Banks are currently swamped with incomplete short sale application packages that will never be approved. Get the peace of mind of knowing that your short sale will be successful by choosing a Certified Distressed Property Expert to handle it for you.

Q: How will a short sale affect my credit?

A: While a foreclosure will forever impact your ability to get another mortgage, a short sale has a substantially lesser effect on your credit rating and borrowing power. Both will lower your credit score, but the short sale carries a lesser point penalty and a shorter duration. A short sale usually reports as a paid debt. There will likely be a reference that says "settled for less than originally owed" or something similar.

Still, it is certainly more advantageous to have the short sale referenced than to have a foreclosure on your credit report. Under the new FHA rules, you may qualify for another mortgage in as little as two years. Foreclosures, on the other hand, will usually have to be disclosed on any new loan applications in the future, and therefore will forever negatively impact your ability to get another mortgage.

Q: When should I start my short sale and how long will it take?

A: As soon as you realize you will be unable to continue paying your mortgage for whatever reason, you should consult a Certified Distressed Property Expert. When facing  foreclosure, time is your #1 enemy.  Even one day can make a huge difference. When you are 30 days behind in your mortgage payments, your lender will usually consider you in default and send out a notice to that effect. According to Louisiana state law and regulations, a foreclosure can proceed as quickly as 35 days from the date a notice of default is filed. For that reason, time is of the essence. The process of listing and marketing the property, finding a buyer, verifying funding, negotiating back-and-forth with the bank, and getting the transaction closed can take anywhere from several weeks to several months. But most lenders can suspend foreclosure proceedings while you are working with them on a short sale.

Q: Will I still be liable for the difference between the short-sale selling price and what I currently owe on my mortgage?

A: Not usually. As a skilled short sale negotiator, your Certified Distressed Property Expert will get the bank's agreement to accept the short sale as payment in settlement of the entire debt, as mentioned above. The difference is "forgiven" and there is no deficiency judgment. 

However, in some cases there may be tax implications. Much like the issue of credit reporting, the tax reporting is individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost as debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness.

But you may not have to pay. President Bush signed law H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007 to help relieve borrowers from getting taxed on their losses in certain specified situations. Beginning January 1, 2007 and lasting until January 1, 2010, certain discharges of mortgage indebtedness on a principal residence will be excluded from a taxpayer's gross income. As always, though, certain restrictions apply. For more information on deficiency judgments and the tax liability you may face based on your current situation, submit your information to your attorney or tax advisor.