One of the biggest foreclosure mistake

More tips from Alex Speak: One of the biggest mistakes you can make after getting served with foreclosure papers is to do nothing, figuring you’ll ‘just let the house go’. Not only could you lose your home, the bank will likely get a deficiency judgment against you; that is, a judgment awarding the bank money for the difference between what you owe on the loan, and what the house sells for after foreclosure.

Since you probably owe a lot more than your house is worth, you’re looking at a big deficiency judgment. In many states, a deficiency judgments is good for twenty years. That means the bank is going to make your life miserable for a long time, possibly recovering money from your bank accounts, income tax refunds and any assets that you accumulate.

What should you do? Either hire a lawyer, or file an answer yourself. (a ‘hardship letter’ isn’t an answer!) In answering a complaint, many lawyers ‘admit that the borrower (you) own the property, but deny all other allegations of the complaint’. In their answer, lawyers also typically raise certain defenses, such as, since the original note has been lost, and the plaintiff (the company suing you) doesn’t have a complete copy of the original note, the plaintiff cannot maintain the foreclosure action.

For adjustable rate mortgages that have interest-only payment periods, and/or the option of making a variety of payments such as a minimum payment, interest only, or interest and principal, and/or have a prepayment penalty, many lawyers say in their answer that the loan violated state unfair and deceptive trade practices laws because the originating lender didn’t explain to the borrower that negative amortization and payment shock would result from the structure of the loan.

The same lawyers also file a written request for the court to refer the case to mediation. One huge advantage of mediation is getting to sit down with the lender’s representative, who has the authority to settle the case without a foreclosure. Before going to mediation, you should know exactly which solutions are available to you. To find those solutions, make sure you do your homework and research all of your options.