Oct 07, 2008

The Five Biggest Foreclosure Myths

Below, you'll find the five biggest foreclosure myths. See the article "How Foreclosure Works" to learn more.

Myth #1: Foreclosure should be avoided at all costs.

The truth: In fact, foreclosure can be your friend and a better option than those frequently urged on stressed homeowners, such as short sales and deeds in lieu of. False. See the entry, "How to Walk Away From Your Home With Money in Your Pocket" for more on foreclosure without fear.

Myth #2:You should move as soon as possible once foreclosure proceedings start. Otherwise the sheriff will forcibly throw you out on the street.

The truth: Foreclosure proceedings typically take several months from the time you first receive notice of your default and the time your home is put up for sale at a public auction. Then, the new owner must follow state legal procedures to evict you, which requires at least some notice (anywhere from 3 to 30 days) and a court order.

Myth #3: When facing foreclosure, your best option is to conduct a short sale.

The truth: A short sale occurs when you convince your lender to let you sell the property for less than you owe on it. The problem is that you have to move out upon the close of escrow, and you therefore give up the opportunity to live in the house for many more months, payment free. See the Nolopedia article "Short Sales and Deeds in Lieu of Foreclosure" for more.

Myth #4: If your home is being foreclosed anyway, there is no good reason to file for bankruptcy.

The truth: If your plan is to stay in your home payment-free as long as possible, bankruptcy can delay the foreclosure auction -- and thus your ultimate move-out date -- by a number of months.

Myth #5: Your home won't be sold in foreclosure while you are negotiating with the bank.

The truth: Once foreclosure proceedings have begun, negotiations with your lender must be successful prior to the date set for the foreclosure sale. Lenders often state right up until the date of a scheduled foreclosure sale that the negotiations are on track, and then pull out at the last moment. This isn't necessarily a deliberate tactic. Rather, it may be a sign of disorganization -- the left hand not knowing what the right hand is doing.