What Can I Take From My Foreclosed Home?

Are you wondering what you can take from your home if it is being foreclosed upon? During the process of foreclosure, you do have legal rights to certain items, but it’s important to know what you can’t legally take when you leave your residence. The general rule is that you can take all of your personal belongings from the home, but you can’t take any fixtures. Beyond that, what you can take and what’s considered a fixture depends on your state’s foreclosure law. 

Before we cover some of the common items you can and can’t take, it’s helpful to understand why foreclosure happens in the first place.

Why Foreclosure Happens

Foreclosure happens when a homeowner can’t make their monthly payments on their mortgage and the lender decides to take the home back. Foreclosure is a legal process that allows the mortgage lender to reclaim the home that the homeowner has stopped making payments on.

Although mortgage lenders don’t like to do it, foreclosures happen because lenders need to recover whatever they can from a defaulted mortgage loan. Lenders are legally permitted to start the foreclosure process because when borrowers take out mortgage loans, they have to agree to have their loan secured by the house they’re buying.

What Is A Secured Loan?

A secured loan is a loan that’s backed by something of value. In finance, something of value is called an asset. When it comes to secured loans, the asset is almost always the property that was bought using the money provided by the loan. Lenders have the right to take the asset back if the borrower can’t make the required loan payments.

This approach applies to all kinds of secured debt. For example, when you take out a car loan, you have to agree to secure the loan with the car. If you can’t make the payments, the lender can repossess the car and sell it to pay off whatever debt was left on the loan.

Unsecured debt, on the other hand, is debt that is not backed by anything of value. For example, credit card debt is unsecured debt. When you apply for a credit card, the bank will look at your credit score and income to approve your application. If you stop making payments on your credit card, you can face negative consequences, but the credit card company can’t “take back” what you purchased with your credit card like an auto lender can repossess a vehicle purchased with an auto loan.

Secured Loans Give Lenders A Security Interest

Just as car loans are secured by the purchased car, mortgage loans are secured by the purchased house. This type of loan agreement gives the mortgage lender what’s called a “security interest” in the house.

A security interest represents the lender’s right to repossess the house if the homeowner defaults on their mortgage loan. However, this interest doesn’t include any personal belongings located in the home. Aside from that, what belongs to the lender and what belongs to you depends on what state you live in because foreclosures are governed by state law.

The security interest also lets your lender sell the house to a new homebuyer at a public auction called a foreclosure auction after they take possession. If the lender can’t sell the house at the auction, the foreclosure property becomes Real Estate Owned (REO) property and the lender will have to hire a realtor. Unfortunately for the lender, realtors cost money and REO property is often hard to sell.

If the mortgage was a Federal Housing Administration (FHA) Loan, the FHA will pay off the remaining mortgage debt and the house will go to the Department of Housing and Urban Development (HUD).

What Property You Can Take From Your Home

Mortgage lenders have a security interest in the real estate itself, which is why they can take it back through the foreclosure process. The bank does not have a security interest in any of your personal property that is inside the foreclosed home.

Here are some of the things you can remove as personal property: 

• Jewelry

• Clothing

• Computer equipment

• Your fridge

• Washer

• Furniture

You can’t remove items that are fixed to the foreclosed property, which means they’re physically attached to the home. Those items are considered “fixtures” and are part of the real estate that the bank is taking back.

As you’re planning your move out of the house, you’ll want to know how much time you have to pack and figure out what needs to stay and what can go. Generally, how much time you’ll have to move out depends on state foreclosure law. For example, in most states, lenders have to give you notice of default. This notice will start the foreclosure process. Also, if a lender wants to remove you from the house, they’ll have to file an eviction action first.

Lenders also must comply with federal laws that govern foreclosure. One of these requirements is a waiting period called pre-foreclosure. Under the law, the mortgage lender has to wait at least 120 days from the date of your missed mortgage payment to start the foreclosure process. 

Regardless, if you think that your home is in danger of foreclosure, it’s a good idea to start collecting items and important documents ahead of time. If you own particularly valuable or sentimental items, like family heirlooms, make sure to put them in a safe place so that they don’t get left behind while you’re packing up.

What Property You Can’t Take From Your Home

It’s easy to determine that the roof and countertops are a part of the real estate that needs to stay, but there are some items that might seem on the bubble, like a ceiling fan or a light-switch cover.

Whether an item can come with you depends upon whether it’s classified as a fixture, which can be a gray area. Fixtures are defined by the law of the state in which you live. A rule of thumb is that if you have to use a screwdriver to remove it, it’s probably a fixture.

Fixtures include:

• Kitchen cabinets

• Plumbing

• The alarm system

• Carpet that is stapled to the floor

• Doors

You also can’t remove any landscaping or built-in outdoor items, like a porch or a patio.

WARNING! Removing Fixtures Can Lead To Serious Legal Issues

It might be tempting to remove fixtures or landscaping, especially if you bought any of the materials involved after you bought the home. But, if you damage the house in this way, you may face serious consequences.

First, you could lose your opportunity to participate in a nonjudicial process called the “cash for keys” program, whereby the bank gives you money to move out by a certain date to avoid lengthy court processes. Whether you can participate in “cash for keys” is completely up to the bank and it probably won’t grant you this opportunity if it doesn’t trust you.

Second, the bank may decide to seek a deficiency judgment against you to recoup some of the costs of fixing the damage. Deficiency judgments give lenders the power to garnish your wages, take money from your accounts, and put liens on other property you own.

Finally, damaging foreclosed property is considered a crime. You could be criminally prosecuted for taking fixtures. This will lead to serious fines, and you could even be charged with a felony, depending on the amount of damage done.

Using Bankruptcy To Protect Your Home And Property From Foreclosure

Filing for bankruptcy can stop the foreclosure process, or at least slow it down. First, the bankruptcy will halt all collection processes through an automatic stay. Even if you ultimately decide that you can’t keep the house, the stay will delay the foreclosure of your home and give you time to figure out what you want to do.

If you want to keep the house, you have options under both Chapter 7 and Chapter 13 bankruptcy that might help you achieve this goal.

Chapter 7

In Chapter 7 bankruptcy, your non-exempt assets may be liquidated and sold to pay off your creditors. Still, Chapter 7 allows you to keep certain property that is exempt from the liquidation sale. In most Chapter 7 cases, all of a filer’s property is considered exempt. What’s considered exempt property varies from state to state, but all states have a homestead exemption that may allow you to keep your primary residence. Some states have generous homestead exemptions that exempt the residence as a whole, while others only exempt a certain amount of equity in a house. 

Other than a primary residence, exempt property usually includes:

• Clothes

• Cars, up to a certain amount

• Pensions

• Items you need to run your business, up to a certain amount

• Jewelry up to a certain amount

• Public benefits

• Your pets

These exemptions will protect most, if not all of your property. Non-exempt assets will include items like boats, vacation homes, collections (like valuable baseball cards), and certain investments. As you near the end of the bankruptcy process, you’ll have to decide whether to keep your home. 

Are you considering bankruptcy? Upsolve offers a free web tool to help people file simple Chapter 7 cases at no cost.

Chapter 13

There are a few differences between Chapter 7 and Chapter 13 bankruptcy. The main difference is that in Chapter 13 bankruptcy, instead of discharging all debt, people make monthly payments on their debt over a period of 3-5 years before any remaining eligible balance is discharged. This kind of bankruptcy is also called a wage-earners plan because the person filing for bankruptcy has to have a regular income to qualify.

Chapter 13 bankruptcy takes much longer than Chapter 7 bankruptcy because of the repayment plan involved, but many filers are able to pay off all of their debt as a result of this process. Most importantly: most people who file for Chapter 13 are almost always able to keep their home if they want to.

Working with a local bankruptcy attorney can help you determine whether you’re eligible to file for Chapter 13 and set up a payment plan that is manageable for your situation.

Other Alternatives To Foreclosure

If you want to keep your home (or at least halt the foreclosure process), you have options: 

• Ask for a forbearance to temporarily halt or lower your payments. Forbearance can help you get back on your feet and benefit from time to negotiate a permanent solution. 

• Negotiate a loan modification with your lender. Modification can involve negotiating a lower interest rate or increasing the length of the loan to lower your monthly payment obligation.

• Refinance your mortgage loan. Refinancing is like modification, but instead, you’re taking out a new loan with new terms. If you’d like to refinance your loan, you’ll have to go through the loan approval process again.

Or… Don’t Keep Your Home

If you decide that you don’t want to keep your home, it’s still a good idea to avoid going through a foreclosure. Lenders don’t like to go through them either since most are judicial foreclosures. Unlike non-judicial foreclosures, judicial foreclosures have to go through the court, are costly and time consuming, and lenders have to comply with the various pre-foreclosure procedures.

There are other ways to hand over real estate to your lender and avoid a foreclosure sale, including selling the house in a short sale or handing over the deed through a deed in lieu of foreclosure. Which option you choose will depend on how much home equity you have and your overall goals.

Let’s Summarize...

Going through a foreclosure can be a terrible experience. If you’re trying to figure out what  stays and what goes, the main thing you need to keep in mind is that you CAN take personal belongings, but you should always check your state law to make sure you don’t take anything that you’re not supposed to.

If you’re concerned about a foreclosure action against your home, a local attorney can help you figure out the best options to move forward. It may be that you’d like to keep your home, or maybe you just want more time to plan.