Foreclosure is the legal process by which a lender, usually a bank, takes possession of a home when the homeowner has failed to make their required mortgage payments. Foreclosure may be a devastating event that results in an individual and/or a family losing their home and finding themselves in an unhealthy financial situation.
A foreclosure may occur after a homeowner is unable to make monthly mortgage payments for a certain period of time. After this, the homeowner will be evicted from their home by the lender. When a borrower purchases a home and obtains mortgage financing, they sign a contract which states that their home serves as collateral for the loan and can be repossessed in the event that the owner does not make payments as required.
After a certain number of missed payments, which may be defined in the contract, the mortgage lender has the authority to seize the property from the homeowner and sell the property in order to recover the debt owed on the mortgage. In some cases, a lender will allow a grace period in which a borrower can make a payment to avoid foreclosure.
This period, however, is typically only a couple of months. In many cases, if the borrower is behind on payments, it is difficult for them to catch up due to late fees.
The two different types of foreclosures are non-judicial foreclosures and judicial foreclosures. A non-judicial foreclosure, also called a foreclosure by power of sale, can be accomplished without court intervention. The lender, typically a bank, can sell the mortgaged property directly to recover the money owed on the mortgage. This foreclosure option is only available in some states.
On the other hand, a judicial foreclosure requires intervention from a court to sell the property. This type of foreclosure is available in every state of the United States.
Once the foreclosure process is complete, no matter which type is used, the property belongs to the lender. Certain exceptions may apply that permit a borrower to reclaim their property. Foreclosure laws vary by state. An attorney can advise an individual what options are available in their state.
What are the State Laws Governing Foreclosure?
As noted above, every state has its own rules and regulations regarding foreclosure. Several steps must be taken prior to the lender taking actual possession of the property by foreclosure.
In 22 states, a judicial foreclosure is the main process for foreclosing on a property. In a judicial foreclosure, the lender must show the court that the borrower failed to make their monthly mortgage payments. If the court approves a foreclosure, the local sheriff will auction the property to the highest bidder to repay what is owed to the lender.
What is a Nonjudicial Foreclosure Timeline?
If an individual resides in a state that permits non-judicial foreclosure, there is a timeline that will likely be followed. As noted above, a non-judicial foreclosure does not require court involvement. Discussed below are the basic steps in a non-judicial foreclosure.
What is a Power of Sale Provision?
If an individual resides in a state that allows non-judicial foreclosures, they most likely signed a deed of trust with a power of sale provision when they took out the mortgage.
If a power of sale provision was included, the mortgage company is permitted to foreclose on an individual’s property without court approval if they are delinquent on their payments. A mortgage is explained in further detail below.
What is a Mortgage?
A mortgage is a security interest that is attached to real property. The property, often a home, is collateral for the mortgage loan that the borrower took out in order to purchase the property. A mortgage is provided by a mortgage lender, usually a bank.
An individual obtains a mortgage when an individual wishes to purchase a property but they do not have the cash available to purchase it outright. A mortgage is placed on the property so that if an individual defaults on the loan, the lender has the right to take possession of the property.
A mortgage transaction includes two important documents, the promissory note and the mortgage, also called a deed of trust. A promissory note is a contract. The terms of the promissory note typically state that one party will promise to repay a specific amount of money to the lending party in a specified time frame. The promissory note holds the borrower responsible for repaying the loan even if they sell the property.
The mortgage, known as the deed of trust, acts as a lien on the property. If the borrower fails to repay the loan, the financial institution that provided the funds for the purchase may force the borrower to repay the loan by selling the property. The deed of trust guarantees that the lender will recoup their money even if it is not the borrower who makes the payments.
What is the Timeline for a Non-Judicial Foreclosure?
The non-judicial foreclosure process timeline will vary by jurisdiction. However, a general timeline is discussed below. It is essential for a borrower to be familiar with the timeline in order to preserve their rights.
The first missed payment is often not cause for alarm. Typically, a loan officer will contact the individual and ask when they will be able to make the payment. In some cases, they will send a notice.
The second missed payment is a larger issue than the first. If an individual misses their payment for two consecutive months, the loan officer will contact the individual again. In these cases, the loan officer may request immediate payment over the phone.
By the third missed payment, the individual is usually considered in breach of the mortgage contract. At this time, the loan officer will send a letter notifying the individual of the breach and demanding they pay the remainder of the mortgage balance.
Usually, at this time, the loan company will exercise the loan acceleration clause, which requires the borrower to pay the balance of the loan within 30 days or the foreclosure process will begin. At this point, it is unlikely that the lender will accept partial payment.
It is important to be aware of the 30 days and when they expire. 30 days after notice is provided, if the borrower has not paid the remainder of the balance, the loan company will notify a trustee to begin the foreclosure process.
A trustee will begin the foreclosure process by recording a notice of default with the county’s assessor’s or recorder’s office. Additionally, the trustee will notify the individual of the delinquency.
Next, a foreclosure sale will be arranged. The sale will occur at an auction on a specific date and time. At the auction, the property is sold to the highest bidder.
Depending on the state in which an individual resides, there may be a redemption period. This gives the borrower a specific amount of time to buy back the property from the foreclosure auction.
If an individual does not vacate the property after the deed is transferred to the new owner, the new owner may have to start an eviction process. After this process, the sheriff’s office will remove the individual and their belongings, forcefully if necessary.
Do I Need an Attorney for a Non-judicial Foreclosure?
Yes, it is essential to have the assistance of an experienced foreclosure attorney for any non-judicial foreclosure issues. An attorney will be familiar with the laws of your state and be able to advise you of your rights during the process.
Your attorney may also be able to help you negotiate with the lender to prevent the foreclosure from proceeding. Having an attorney on your side may be the difference between keeping and losing your property.