A foreclosure is a legal process by which a lender, often a bank, takes possession of a home when a homeowner has failed to make mortgage payments. It is a devastating event for a family. Foreclosure may result in an individual and/or family losing their home and finding themselves in an unhealthy financial situation.
Foreclosures occur after a homeowner is unable to make their monthly mortgage payment for a certain period of time and they are evicted from their home by the lender. When an individual purchases a home and obtains mortgage financing, they sign a contract stating that the home serves as collateral for the loan and may be repossessed in the event the owner does not make payments as required.
After a certain number of missed payments, the lender has the authority to seize, or take, the home from the homeowner and sell the home to recover the debt owed for the mortgage. Some lenders will allow a grace period in which a payment can be made to avoid foreclosure. However, this period is typically only a couple of months. Many times, if the borrower is behind on their payments, it is difficult to catch up because there are often late fees applied.
There are two different types of foreclosures, non-judicial foreclosures and judicial foreclosures. A non-judicial foreclosure, also known as a foreclosure by power of sale, does not require court intervention. The lender, usually a bank, is permitted to sell the mortgaged property directly to recover the money owed. This is only available in certain states.
A judicial foreclosure, on the other hand, requires court intervention to sell the mortgaged property. In contrast to a non-judicial foreclosure, a judicial foreclosure is available in every state.
No matter which type of foreclosure process is used, once the foreclosure is complete, the home belongs to the lender. There are, however, certain exceptions that may permit a homeowner to reclaim their home. These laws will vary by state. An attorney will be able to advise an individual whether this is available in their state.
What are the Consequences of a Foreclosure?
The consequences of a foreclosure may be devastating to an individual and/or their family. The process is complicated and may be overwhelming. It is important for individuals to be aware of their rights and what mortgage lenders are and are not permitted to do.
In some cases, a mortgage lender may exceed their rights during a foreclosure process. The laws regarding what a mortgage lender may do vary by state. However, in general, a mortgage lender cannot engage in the following prior to foreclosing on a home:
- A mortgage lender cannot engage in dual tracking. In some states, the lender is required to determine whether or not the homeowner qualifies for either a loan modification and/or some other form of help prior to foreclosing on the home. The lender is not permitted to do both at the same time;
- The lender cannot begin the foreclosure process if the homeowner applies for some help and/or a loan modification;
- The lender must obtain a court order and file for an eviction prior to foreclosing the home;
- The lender is not permitted to padlock the individual’s home if they are still living in it and;
- If the borrower reinstates their mortgage prior to the sheriff sale, the bank cannot continue the foreclosure process.
However, there are some actions the lender is permitted to take during the foreclosure process, including:
- Padlocking the home if it is empty;
- Seeking an alternative judgment if the lender is unable to sell the home at auction for what is owed on the mortgage and;
- Requesting either a non-judicial foreclosure or a judicial foreclosure.
What are the State Laws Governing Foreclosure?
Each state has its own rules and regulations regarding the foreclosure process. There are several steps that must be taken prior to the lender taking actual possession of the property through foreclosure.
In 22 states of the United States, a judicial foreclosure is the primary way of foreclosing on a home. In a judicial foreclosure, the lender must show the court that the borrower is failing to make their monthly mortgage payments.
If the court approves the foreclosure, the local sheriff will auction the property to the highest bidder in order to recoup what is owed to the lender. In some cases, the lender becomes the owner and resells the property.
What is the Judicial Foreclosure Timeline?
As noted above, a judicial foreclosure is a foreclosure that is ordered by a court. In order for an individual to exercise their rights during a foreclosure, having knowledge of the process is essential. Although these foreclosures vary from state to state, the general process is discussed below.
If the borrower missed one payment, they will have a chance to pay and continue the mortgage. The loan officer will likely call and remind them to make the payment and that they are late. Late fees may apply.
The second missed payment will be more serious. The loan officer will likely call again and request a payment be made over the phone. Again, late fees will likely apply.
The third missed payment is where the situation gets more serious. If three consecutive payments are missed, the loan officer will send a notice of breach of the mortgage contract. In the breach letter, it will likely state that the mortgage company will exercise its accelerated clause, which means the remainder of the mortgage must be paid within 30 days.
If the borrower receives a notice of breach and is unable to pay the remainder of the mortgage within 30 days, the lender will begin foreclosure proceedings. This is where it is important to obtain the assistance of an attorney.
Next, the mortgage company will begin the judicial foreclosure proceedings by having their attorney file a lawsuit. The borrower will have approximately 20 to 30 days to object by a formal written response. If the borrower does not object to the foreclosure proceedings, the court will enter an automatic default judgment against them. If the borrower does object, they may have a number of procedural and substantive defenses available.
If the court does not enter a default judgment against the borrower, foreclosure proceedings continue. The court will schedule a foreclosure auction. At this auction, the highest bidder on the home will be the new owner.
Depending on the location of the property, the borrower may have a right of redemption. If this is available, they will have a period of time following the auction to purchase the property back from the highest bidder.
If the borrower cannot exercise their right of redemption, they will be evicted from the property. The borrower will have a certain number of days to vacate the property and if they do not, they will be removed by law enforcement.
Do I Need a Lawyer for a Foreclosure?
Yes, it is essential to have the help of an experienced foreclosure lawyers with any foreclosure issues you face. It is important to hire an attorney as early in the process as possible. In some cases, an attorney may be able to help you negotiate with the lender to avoid foreclosure.
An attorney will review your case, defend you against the foreclosure, and utilize whatever methods are available in your state to prevent it. Having a lawyer helping with your foreclosure case may be the difference between keeping and losing your home.