When foreclosure strikes, homeowners often seek out the most reliable foreclosure advice that is available to them. While a great number will end up on the internet, searching for terms they are aware of, or looking up state foreclosure law information, others will request help from a local real estate agent, sometimes the very one who sold them their house to begin with. As surprising as it sounds, though, real estate agents do not generally know the answers to questions relating to the foreclosure process, so it is not surprising that they could not give the homeowners any useful information.

As licensed real estate agents, we are aware of the fact that the issue of foreclosures are not covered in depth in real estate licensing classes. After obtaining the license by passing the state test, there is little reason for real estate agents to become knowledgeable about how foreclosure works, and unless they study independently, they may remain ignorant even as they have homeowners ask them for advice. Learning about foreclosure is a process that begins with general information, such as knowing various terms and definitions and looking up state law, but which can not be fully understood without learning from homeowners what they go through and what they attempt to save their homes.

Real estate licensing courses are also extremely vague on what options homeowners have to avoid foreclosure, focusing instead on a brief discussion of the legal mechanisms at work. There are no discussions of the difficulties in qualifying for a foreclosure loan, how to write a convincing hardship letter, or even how to postpone the sheriff sale to gain extra time to save a house. Obviously, not all of these ideas can be discussed in a general licensing class, but the mere existence of such options are not raised, leaving real estate agents woefully unprepared to provide assistance to clients at the most stressful time in their lives.

Foreclosure is determined by state law, so any homeowner facing the loss of their home should look up their foreclosure laws. That will give them a much more comprehensive outline of the actual foreclosure process than any real estate agent can provide There will most likely be various ways that the lender and court system may proceed, including public reporting requirements, and any potential redemption period guaranteed to the homeowner. It is important for foreclosure victims to look up the state law first, so they have an idea of what to expect, how much time they have, and what options may be feasible to stop foreclosure as quickly and cheaply as possible.

In some states, the homeowners can be sued after foreclosure if the house sells at sheriff sale for an amount that does not pay back the loan in full. This is called a deficiency judgment, and is not allowed in all states under all circumstances; again, it is important to research the foreclosure laws relating to this issue. The lender may be able to sue the foreclosure victims for the difference and obtain a deficiency judgment. In theory, this allows them to continue the collection efforts even after the foreclosure is over, and they may be able to place a lien on other property owned by the foreclosure victims, garnish wages, or sell the loan to a collection agency. However, as we have discussed elsewhere, banks rarely pursue this, as they know homeowners in foreclosure do not have a lot of extra money to pay back tens of thousands of dollars in judgments, and it costs the bank more money to initiate another lawsuit, anyway.

The conventional wisdom parroted by "informed" citizens as well as real estate professionals, though, is quite different from the reality of foreclosure. This can only be due to widespread ignorance of how the process actually works in reality and the various resources homeowners have at their disposal to save their homes. While many will threaten the foreclosure victims with being evicted right away, having no hope of being able to stop the sheriff sale, and being sued even after the foreclosure auction, many of these possibilities rarely translate into reality. However, the fear of being randomly kicked out and sued for tens of thousands of dollars can cause unnecessary anxiety and may persuade homeowners to leave the house before they have to, in a mythical race against the clock to avoid eviction.

The worst that usually happens in a foreclosure is the homeowners' credit drops significantly, making sure they can not get another loan or credit card, and some landlords will not rent an apartment to them because of their inability to pay back the mortgage. But these are all pretty minor consequences, compared to being left out in the street with no warning, and having their income garnished for years to come.

As one final uncleared misconception, homeowners may just want to rely on giving the property back to the bank, if there is no other way to prevent foreclosure. They will have to ask the bank about giving a deed in lieu of foreclosure, which allows them to sign title of the property back without going through the foreclosure process. When this happens, the bank can not sue for a deficiency judgment or otherwise continue pursuing the former homeowners. Because this option does not prevent the loss of the home in the end it does help the credit situation much, but it is slightly better than a full foreclosure. Another argument for giving a deed in lieu is that homeowners may be able to avoid some of the late payments that lead up to the foreclosure, if they can just give it back in a shorter time period. When they ask the bank about this option, the lender can inform them if they even accept it, and what the process would be.

Receiving accurate and relevant foreclosure advice is often one of the most difficult tasks for homeowners in a financial hardship. And because they are trained to rely on the information provided by perceived "experts," foreclosure victims may receive inaccurate or false information regarding the real dangers they face, while having the most unlikely possibilities amplified and distorted. It is no wonder that homeowners are often fearful and anxious enough to take the advice of someone who knows as little about foreclosure as they do, and move out of the house in an attempt to avoid being randomly thrown out. But, while foreclosure gives banks a legal method to take back a property, state laws also provide homeowners with legal protections and options that can help them save their homes and avoid a violent, unannounced eviction. It is up to homeowners, though, to check and recheck foreclosure information they are given, and trust their own abilities and knowledge to save the house.

With record foreclosure numbers comes the inevitable blame game -- every homeowner is looking for someone to blame for the fact that their mortgage payment doubled while their house value was cut in half, lenders are blaming everyone they can for their own poor lending practices, and investors are blaming the hedge funds that invested in these overpriced, impossible-to-pay mortgages for their poor returns and the destruction of their investment portfolios. Many homeowners have begun to pin the blame on the real estate agent who sold them the house to begin with, as they were promised no end to the appreciation in value and a secure ATM machine in the form of their equity for years to come. The reality, though, is a little different, and revolves around the actual responsibility that real estate agents have to the home buyers. Actually, the Realtor is supposed to act as the client's agent, meaning the Realtor is to do what the clients want. Buyers may not necessarily want what is best for them.

For example, Realtors will generally want their clients to have some sort of pre-approval letter from a lender to make an offer to purchase the house that they want. They take the lender's word for it that the clients completed their mortgage application without lying about their income, and are willing and able to make the payment. Logically, buyers should not make an offer on a property if they have any concerns that they will not be able to afford the payment that is listed on the pre-approval letter. This is an especially important issue if they are putting little money down or have poor credit, as they may be applying for an Adjustable Rate Mortgage with payments that will go up after the first couple of years.

Realtors also don't ask the clients what kind of mortgage they have applied for, because they are not acting as mortgage brokers offering financing for a property. They help in the sale and transfer of the property but not so much in the actual financing. So they won't necessarily be aware of the fact that the clients have gotten an Adjustable Rate or Interest Only Mortgage that will be way too expensive in a couple of years. It is mainly up to the mortgage broker to disclose this fact to the loan applicants and for the home buyers to read through the paperwork carefully to understand what they are getting into. If they do not understand the documents, they should have them reviewed by competent legal counsel. If they do not understand and can not afford legal counsel, it may be better to wait until they are in a better financial position, rather than purchasing a house before they are ready.

The real estate agent, in most cases, just knows that the clients have been approved for a loan to purchase the house, and that the clients have decided to make an offer to purchase the property, based on their expectations to be able to make those payments. The Realtor is then instructed by their client to make the offer, and the Realtor has to do it, or break the contract. When this happens, the real estate agent often offers advice and guidance, but it is ultimately up to the purchasers to make the offer and then it is the responsibility of the agent to convey the offer to the current owners -- without altering it in any way.

The real estate agent works for the buyer and the buyer tells the real estate agent what he is looking for. Both of them have a responsibility to keep each other informed of any material facts about the transaction. These might include any damage or disrepair to the property, a highly over-valued property that is not worth the high asking price, or the inability to afford the projected payments. If the buyers realize they will not be able to afford the mortgage long-term, then the transaction should stop and a lower offer made, smaller house searched for, or higher down payment offered. It is not a good idea to continue with a transaction that will inevitably end up in foreclosure, as these results hurt both homeowners and real estate agents in the long run.

Both parties have responsibilities to each other, and a number of the current foreclosures are a result of a lack of communication between the Realtor, their clients, and the mortgage companies. However, in the transaction regarding the property itself, the agent has a responsibility to inform the clients of potential repair needs and the current market conditions, such as a high over-valued property that is in danger of a decrease in worth if the market slows. In terms of the financing of the property, it is up to the mortgage broker to make the required disclosures to the home buyers; but only the loan applicants themselves can make sure that they understand what they are getting into. It is unfortunate that the current foreclosure crisis will end up being a lesson for many homeowners in making sure to read and understand what they sign, but hopefully the lessons learned now will result in a healthier market with more educated homeowners in the long term.