Understanding the
Foreclosure Process
At the risk of stating the
obvious, foreclosure is
the legal
process in which a lender sells or
seizes a person's property to
recover and repay the debt attached to that property.
Fore-
closure occurs when someone borrows money to buy real estate, but
cannot pay
the agreed-
upon monthly payments.
A foreclosure can occur for a
lot of reasons;
things like a person losing his or
her job, someone
getting struck with an illness, an unexpected death in the family,
or even a change in the interest
rates. Any of these
events can get in the way of people being able to continue making their
mortgage payments. If a home owner can not keep up with the
payments, then the lender can
place the property in
foreclosure.
The first step towards
foreclosure usually
happens when the lending institution notifies the
owners in writing
that they are in default of payment. In most cases, the lender
will bring in
an attorney to start the foreclosure process
after three consecutive payments are
missed.
The attorney will send a
letter informing the
owners that if they do not pay what is owed, the
lender will be forced to begin a foreclosure proceeding. The
lender also
can
request a trustee
sale or judicial foreclosure where the property is
sold at public auction.
The homeowners still
can avoid
foreclosure at this time by making the loan payments current
and paying all of the overdue amounts after the notice of the default
has been
recorded. This
is called the right of
reinstatement.
The last date in which the money owed can be brought
up
to
date and paid is called the cure date.
It
is usually no later than a few days before the
property's impending
sale.
If the homeowner can not make
these overdue
payments, then the foreclosed property often
is sold
at a real estate auction or trustee sale where it is sold to the
highest
bidder.
If the property is worth less
than the total
amount owed to the lender (which can occur if
property values have dipped since the homeowner took out the original
loan), then the lender
can seek a deficiency
judgment. In
this case, the homeowner would not only lose the home
but would incur
an additional debt. This additional debt
would be the difference between what
the home sold for at auction
and
the balance of the loan.
Mortgage lenders usually
consider a mortgage
to be in default when payments have not been
made for a period of three months.
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There
are
ONLY
three types of foreclosure
While
the reason
for foreclosures
may be similar from state to
state and person-to-person, not
all foreclosure processes are exactly
the same. In fact, there are three different and distinct
categories of foreclosures.
The Judicial
Foreclosure process
includes:
1. A mortgagor defaults
2. A complaint is filed
and
a lawsuit is initiated
3. A notice of default is
recorded
4. A court hearing and
date
are set for sale
5. A sale date is
advertised
6. A foreclosure sale
occurs
7. A buyer receives
a certificate of sale
8. A period of statutory
redemption is available
9. A sheriff's deed
is conveyed to the buyer
10. A possible deficiency
judgment can occur
***The
judicial process is lengthier and
depends on your state law***.
The
legal
procedure calls for an
official letter to be sent by the mortgage lender to
the
borrower inticating the lapse of default in payment of monthly
installments that needs to
be remedied within a certain
date (normally 5 days).
This
letter
of call is the first
notice to the borrower warning him or her of the proposed
foreclosure
by the lender. If no action is taken from the borrower, then the
next step is
for the mortgage lender to appoint an attorney and file a
law suit to establish the default
and obtain the order of the court to
foreclose on the property. A legal notice is sent by
the lender's
attorney to the borrower inticating the commencement of the legal
proceedings.
From
the date
of this legal notice,
normally 90 days' time (or grace period) is allowed to
the borrower to
clear the outstanding balance of the mortgage loan and get back the
rights
of ownership of the property. This is the first stage of
the foreclosure process and is known
as the pre-foreclosure period.
The list of all such properties is published in the media and
becomes
public record. A copy of the foreclosure
notice also is
affixed visibly on the
concerned property.
The
court
passes an order for
foreclosure of the said property and sale of the property by
public
auction. Also specified is the date and time of the auction at
the court premises
(normally months afterwards). The auction takes place accordingly
and the property is
transferred to the highest
bidder at the auction.
This
stage is
the actual
foreclosure.
If, at
the auction, no buyer is interested to bid more
than the cut off price (opening bid) then the lender repossesses the
ownership. This
stage
is called post foreclosure.
Usually these proceedings before a court are long drawn for
months and only are prevalent in certain states of the U.S.
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The
Non-Judicial Foreclosure process includes:
1.
A trustor defaults
2.
A trustee initiates
the foreclosure
3.
A notice of trustee sale
is
recorded
4.
A sale date is
advertised
5.
A foreclosure sale occurs
6.
The trustee conveys the
deed to
the buyer
7.
A period of statutory
redemption is available
8.
A possible deficiency
judgment can occur
***The
non-judicial form of
foreclosure is a rapid foreclosure process and
is deter-
mined by your particular state law***.
This
process
of foreclosure is
similar to the judicial form described above except that the
mortgage lender is allowed to follow non-judicial procedures without the need to go
to court.
The
notice of
default is recorded at
the County Recorder's Office and sent to the borrower
who is provided with a 5 day reinstatement period. If no
action is
taken,
then a notice of sale
is recorded at the Recorder's office
and sent to the borrower. This notice of sale is
published
in the media and a copy is pasted on the property. Only 90 days
time is allowed for clearance
of the outstanding dues to the lender to
avoid foreclosure. The sale of the property takes place
on the
date and time specified in the notice of sale at the county court.
The
public auction is held and the
bidders
are required to pay a deposit upfront to take part
in the
bidding. The highest bidder has to pay the bid amount within 24
hours in order to take
possession of the property.
In view
of the speed of the foreclosure process with less procedural
hassles,
in most states of the U.S. ONLY this system is preferred
by mortgage lenders.
The
Strict
Foreclosure
process:
Involves
a
decree that
orders the payment of a mortgage of real property. The strict
foreclosure
decree sets out the amount due under the mortgage, orders
it to be paid within a particular time
limit, and provides that if
payment is not made, then the mortgagor's right and equity of
redemp-
tion are forever barred and foreclosed. If the mortgagor
does not pay within the time designated,
then title to the property
vests in the mortgagee without any sale thereof.
Strict foreclosure was the original method of foreclosure, but today it
is ONLY available in a few
states. Such states include
Connecticut, New Hampshire, and Vermont.
The foreclosure process is slightly different from state to state, and
the two basic types of fore-
closure are judicial and non-judicial.
In mortgage states, judicial foreclosures are used. In deed
of
trust states, non-judicial foreclosures are used. Most states
permit both types of proceedings.
But as a
general
rule, most states commonly use ONLY one method or the other.
Foreclosure is a legal proceeding enabled by the Foreclosure laws of
the Federal Government
of the U.S. to protect the rights of the
mortgage lender in getting back the outstanding loan
amount in case of
default of repayment. At the same time, foreclosure provides that
a fair
opportunity be
given to the borrower to pay back the loan on time, even if the
default has
occurred continuously by non-payment of the
monthly
installments agreed upon.
Doug Iles
The Beneficial Broker
c/o Beneficial Brokers, LLC
http://www.creativehomesellerstrategies.com
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26
Gibson Avenue
Mansfield, OH 44907-1316
Business email: askyourquestion@creativehomesellerstrategies.com
Home email: diles1@neo.rr.com
Other email: douglas.iles@huntington.com
TOLL-FREE business phone: 1-877-972-3847 or
1-877-97ADVISE
Choose Option 1 to leave a message for Doug Iles
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