As common as foreclosure news is these days, both buyers and sellers tend to have major misconceptions regarding their rights, responsibilities and the overall process. No matter which side you're on, here are a dozen myths demystified.
- The bank really wants your home back. It's not your home but the money lent for its purchase that the bank wants to recover. Foreclosure is a time-consuming, last-resort process for banks, and most will do everything possible to work things out with a homeowner in order to avoid it.
- Filing for bankruptcy stops a foreclosure. Bankruptcy creates only a temporary delay in the foreclosure process, so it's not a strategy for stopping it altogether.
- You're not responsible for paying the bank's legal fees. Actually, you are, and you'll do so if you want to hold on to your home. All of the details are in your mortgage agreement, so take a close look at the fine print.
- Even if I pull together the money I owe after the foreclosure process has begun, it's too late to stop it. Not so. Most states have laws requiring that foreclosure proceedings be stopped if the homeowner has the money to cover all back payments, late fees and legal fees owed. A mortgage negotiation professional can assist you with this process if needed.
- The bank will take all my stuff along with the house. All personal property is yours to take; however, fixtures, floor coverings, appliances and anything else permanently attached to the house must stay.
- My involvement with the property is over once the bank takes it back. After foreclosure, if the bank sells the home for less than you owed on the mortgage, you'll still be responsible for the difference or "deficiency." What's more, they can collect interest on that amount. A deed in lieu of foreclosure or chapter 7 bankruptcy may clear you of owing a deficiency, so consult a bankruptcy attorney if you have questions about your status and options.
- Foreclosed properties are always in bad neighborhoods. In the current economic climate, every community and every part of town can contain foreclosed properties, with abodes ranging from modest town homes to extravagant vacation escapes appearing on the market.
- Foreclosed properties are usually in poor condition. Though this isn't generally the case, there can be significant maintenance and structural issues hiding behind an attractive and seemingly well-tended façade. Do your research before purchasing any foreclosed property, being sure to find out how long maintenance had been deferred before it hit the market, as well as how long it's been sitting idle and waiting for a buyer. For more tips on hidden issues, read about the Five Fatal Foreclosure Flaws.
- A foreclosure sale takes advantage of the owners. The occasional unscrupulous buyer or investor notwithstanding, purchase of a foreclosed property actually helps the owner via payment of their debt, avoidance of bankruptcy and a bad mark on their credit history, and the possibility of something to show for their equity in a property. Purchases made during the pre-foreclosure period are even more advantageous for both the owner and buyer.
- Financial irresponsibility is always the source of foreclosure. All it takes is the loss of a job, an unexpected health issue or other life emergency to put a previously solid financial picture in jeopardy, and coverage of such major expenses as mortgage payments can easily be impacted.
- Foreclosure guarantees bargain pricing. Before falling completely in love with what looks like a can't-miss deal, be sure you know the property's true market value so you're not paying for more house than you're getting.
- A lower price equals higher equity. This is one equation that won't pan out if a property involves unpaid taxes, mechanics' liens or an expensive string of repairs, all of which subtract from the equity and add to the cost.
Tom Kraeutler is the Home Improvement Editor for AOL and co-author of My Home, My Money Pit: Your Guide to Every Home Improvement Adventure. He delivers expert home improvement tips each week as host of The Money Pit, a nationally syndicated home improvement radio program.