Foreclosure is a process which occurs when a homeowner fails to make their monthly mortgage payments. They are evicted from the home by the lender, who holds the legal authority to do so because of the contract signed by the buyer of the home, and the seller or lender. The house itself serves as collateral as stipulated in the contract. The home is then usually sold so that the profits from the sale go to the seller, bank, or lender in order to recoup their losses.
Some sellers or lenders allow a grace period in which the payment can be made before foreclosure is initiated. However, this grace period only lasts for a couple of months before the property is foreclosed. If the borrower is already behind on their mortgage payments, it is generally harder for them to catch up because there are generally late fees involved.
While the foreclosure process varies from state to state, it is generally straightforward, lasting up to six months. The exact process used depends on whether the foreclosure is a judicial sale or a nonjudicial sale.
Typically, the foreclosure process is as follows:
- Pre-Foreclosure: After the property owner fails to make two to three mortgage payments within thirty to sixty days, the property is considered to be in pre-foreclosure. During this time, lenders will send a demand letter which demands full and immediate payment of the loan in addition to any legal and/or late fees incurred. The homeowner has thirty days in which to make the payments on the debt owed, or the foreclosure process will be officially initiated;
- Notice of Default: After ninety days of non-payment, a bank will issue a notice of default which is delivered by a local sheriff to the property owner. This notice is recorded by the government agency, and a date will be determined for a foreclosure auction. A notice of default also allows investors and other homeowners to consider a short sale on the property;
- Foreclosure Auction: A public foreclosure auction allows the property to be sold to the highest bidder. The lender may also purchase the property and sell it independently through a private sale. The homeowner must vacate the property, or an unlawful detainer will be filed in order to evict the homeowner if they are still living on the property after the sale; and
- Post-Foreclosure: If the sale’s proceeds do not satisfy the debt being foreclosed on, the lender can legally bring personal action on the homeowner borrower for the deficiency. In some states, the borrower may have a right to redeem after a foreclosure by paying the entire sale price. The post foreclosure process will be discussed further below.
What Happens After Foreclosure?
Once the foreclosure process has been initiated by a bank or other lending institution, several different outcomes are possible depending on the financial situation of the homeowner. Contrary to popular belief, homeowners do not immediately lose their right to stay on the property; they are generally considered to be legal tenants until formal eviction occurs.
Some common examples of the variety of different outcomes that can happen after foreclosure has been filed include:
- The homeowner pays off their mortgage debt and reclaims house through redemption, although this is relatively rare because most who default on mortgage payments do not have the funds with which to reclaim their property;
- The homeowner sells the home through a short sale and pays off mortgage debt, which can take place before foreclosure is completed or filed;
- The bank or court sells the home for a profit through a foreclosure auction, as previously mentioned; or
- The bank takes control of the property and begins to manage it, such as by allowing renters to move in.
In terms of the first example, many states allow for a statutory redemption period. This is a time period following the final sale in which the homeowner can reclaim their house by paying for it if they are able. The time period for such action is generally one year after foreclosure.
At any time prior to a foreclosure sale, the homeowner or mortgagor may redeem the property by paying the amount due. This is referred to as the right of redemption. If the mortgage contract contains an acceleration clause, the full balance on the mortgage must be paid in order for the homeowner to redeem.
What Are Some Legal Issues That May Arise After Foreclosure? What Is a Zombie Property?
One of the most common legal issues associated with foreclosure is that of eviction. As previously mentioned, the previous owner does have some legal rights to remain in the home for a specified amount of time after foreclosure. However, they will need to vacate the premises when legally required to do so. This has great potential to cause problems for the bank or for the new property owner, especially in terms of when the new owner moves into the home.
Another example of legal issues that may arise post-foreclosure include problems associated with when a property has been vacant for a considerable period of time. This is referred to as zombie property, which will be further discussed below.
Specifically, these issues can include:
- Unpaid property taxes;
- Property damage resulting from a lack of maintenance;
- Unpaid utility bills; and/or
- Safety or zoning violations.
Such issues may need to be resolved through a legal proceeding in court, while disputes over the property’s title may need to be resolved through a quiet title proceeding.
Zombie property is a property that has been abandoned or vacant for a long period of time, as previously mentioned. This can happen in specific situations in which a person’s home has been foreclosed upon, but the foreclosure is never really finalized. As such, the title never transfers from the homeowner to the bank. I
n cases involving zombie property, the homeowner may vacate the property and move away under the mistaken assumption that the bank will take over ownership of the property. However, they are still the legal property owner; as a result, the property falls into a state of disuse and disrepair due to the fact that neither the homeowner nor the bank are actively maintaining it.
This is why it is imperative that if you have had foreclosure filed against you, you are sure to follow up on it and ensure that the foreclosure process has actually been finished through to completion. Furthermore, you will want to ensure that title has officially been transferred from your name to the bank’s name, or to the new owner’s name.
Do I Need An Attorney For Help With What Happens After Foreclosure?
If you are being foreclosed upon and would like assistance with the post-foreclosure process, you should consult with an experienced and local foreclosure attorney. It is advised that you work with a local lawyer, as so much of the foreclosure process varies from state to state. A local attorney can help you understand your state’s specific laws, and provide you with the most relevant legal advice to help you move forward.
Additionally, a local attorney will also be able to represent you in court, as needed. However, working with an attorney throughout the foreclosure process can help reduce the likelihood of further issues arising. This is because a lawyer can help guide you through the pose-foreclosure process to reduce the chances of a zombie property.