Essentially, when a homeowner fails to make his or her agreed upon mortgage loan payments, the mortgage servicer will try to avoid any additional loss by taking possession of the home, which is the collateral that had secured the loan. Foreclosure is a legal process and varies from state to state. Below is a general description of the foreclosure process. Please Note: Foreclosure laws and timelines differ from state to state. Please contact your state Attorneys General office to determine your specific states foreclosure laws.
STEP ONE: NOTICE OF DEFAULT
The first step in the foreclosure process is the issuance of a Notice of Default by the lender, which typically occurs after the homeowner is 30-45 days past due on their mortgage. It will usually be sent to the homeowner by certified mail. The lender will set a period of time for the homeowner to pay the lender the required amount past due and return the loan to good standing.
STEP TWO: LEGAL FILING
If the homeowner does not pay off the amount past due by the stated deadline, the lender may elect to proceed with foreclosure. There are generally two types of foreclosures: judicial and non-judicial. In judicial foreclosures, the lender may file a lawsuit in order to obtain a court order to sell the property. This usually happens after 90 days of delinquency. In a non-judicial foreclosure, the process follows the procedures spelled out in the mortgage (or deed of trust) that allows a trustee—the bank or mortgage company—to foreclose on and sell the property.
STEP THREE: NOTICE OF FORECLOSURE SALE
After the required time has elapsed, typically after 120 days without making a payment, the homeowner will be sent a notice of foreclosure sale, which will provide notice of the date by which the premises must be vacated and may include the total amount in arrears as well. At any point during these proceedings, you may be able to keep your home if you pay off the loan and all foreclosure proceeding costs accrued.
STEP FOUR: PUBLIC SALE
The sale of a foreclosed home could involve a public sale held by an auction, where the highest bidder can buy the property. If there are no buyers, the lender may buy the property by submitting a credit bid based on the amount owed on the mortgage. If the lender takes the property, it could be sold in a private sale at a later date. If the homeowner has not vacated the property by the time of the foreclosure sale, an unlawful detainer lawsuit could be filed to evict the homeowner. You may ask for time to move out of the property; however the bank does not have to grant the request and may request that you evacuate the property immediately.
Phases of A Foreclosure
Many Americans have been through the process of foreclosure, or know someone who has gone through it. Foreclosure is the process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property. If you (or a loved one) are facing foreclosure, make sure you understand the process. While the process does vary from state to state, there are normally six phases of a foreclosure procedure.
Phase 1: Payment Default
A payment default occurs when a borrower has missed at least one mortgage payment. The lender will send a missed payment notice indicating that they have not yet received that month’s payment. Typically, mortgage payments are due on the first day of each month, and many lenders offer a grace period until the 15th of the month. After that, the lender may charge a late payment fee and send the missed payment notice. After two payments are missed, the lender may send a demand letter. This is more serious than a missed payment notice; however, at this point, the lender may be still willing to work with the borrower to make arrangements for catching up on payments.
Phase 2: Notice of Default (NOD)
A notice of default is sent after 90 days of missed payments. In some states, the notice is placed prominently on the home. At this point, the loan will be handed over to the lender’s foreclosure department in the same county where the property is located. The borrower is informed that the notice will be recorded. The lender will typically give the borrower another 90 days to settle the payments and reinstate the loan. This is referred to as the reinstatement period.
Phase 3: Notice of Trustee’s Sale
If the loan has not been made up to date within the 90 days following the notice of default, then a notice of trustee’s sale will be recorded in the county where the property is located. The lender must also publish a notice in the local newspaper for three weeks indicating that the property will be available at public auction. All owners’ names will be printed in the notice and in the newspaper, along with a legal description of the property, the property address, and when and where the sale will take place.
Phase 4: Trustee’s Sale
The property is placed for public auction and will be awarded to the highest bidder who meets all of the necessary requirements. The lender (or firm representing the lender) will calculate an opening bid based on the value of the outstanding loan, any liens, any unpaid taxes, and any costs associated with the sale. When a foreclosed property is purchased it is up to the buyer how long the previous owners may stay in their former home. Once the highest bidder has been confirmed and the sale is completed, a trustee’s deed upon sale will be provided to the winning bidder. The property is then owned by the purchaser, who is entitled to immediate possession.
Phase 5: Real Estate Owned (REO)
If the property is not sold during the public auction, the lender will become the owner and will attempt to sell the property on their own, through a broker or with the assistance of a real estate owned asset manager. These properties are often referred to as “bank-owned” and the lender may remove some of the liens and other expenses in an attempt to make the property more attractive.
Phase 6: Eviction
The borrower can often stay in the home until it has sold either through a public auction or later as REO property. At this point, an eviction notice is sent demanding that any persons vacate the premises immediately. Several days may be provided to allow the occupants sufficient time to remove any personal belongings, and then typically the local sheriff will visit the property and remove the people, and any remaining belongings. Any belongings may be placed in storage and can be retrieved at a later date for a fee. Throughout the foreclosure process, many lenders will attempt to make arrangements for the borrower to get caught up on the loan and avoid foreclosure. The obvious problem is that when a borrower cannot meet one payment, it becomes increasingly difficult to catch up on multiple payments.
Foreclosure Timeline: After You Receive a Formal Notice of Foreclosure
In around half of the states, the bank has to file a lawsuit in court to foreclose. This process is called a judicial foreclosure. If you live in a state where foreclosures go through the court system, you might get 30 days’ notice of the bank’s intent to file a foreclosure action in the form of a “breach letter” (if the terms of your mortgage or deed of trust require it). You will definitely get a summons and complaint telling you when a foreclosure action has been filed in the appropriate court. Once you receive notice about the lawsuit, most people have 20 to 30 days to respond to the suit. If you file a response contesting the foreclosure action, it might take a few months—or even longer—before judge rules on whether to grant the foreclosure. Even if you don’t contest the foreclosure action, the sale usually won’t take place until at least a month after the judge issues the foreclosure order. So you’ll have at least a couple of months from the first notice of the case to the date the court orders the sale to take place. You’ll probably have at least double that amount of time if you decide to oppose the foreclosure in court. If the judge orders the foreclosure sale, you’ll probably get a notice telling you when and where the sale will take place.
In the remaining states, the foreclosing bank can opt to use an out-of-court (non-judicial) process to foreclose. With a non-judicial foreclosure, the bank has to carefully follow a series of steps described in the state statutes to complete the process. Again, depending on the terms of your loan contract, you might get a breach letter. Also, depending on which state you live in, you might get a pre-foreclosure notice stating the bank’s intent to file a foreclosure action. How much time you have from the first formal notice that foreclosure proceedings have started to the date your property will be sold and the procedures in between varies from state to state.
State law might require:
• a notice of default giving you a certain amount of time to get current on the loan by making up all the back payments and then a notice of sale (if you haven’t brought the loan current by the deadline)
• a combined notice of sale and right to cure telling you that your home will be sold on a certain date unless you make up the missed payments
• a notice of sale, or
• in a couple of states, notice through publication in a newspaper and/or posting on the property or somewhere public.
Why do people default on their mortgages?
Often, the borrower doesn’t have the money to continue making mortgage payments. This can happen for a variety of reasons, including recent unemployment, divorce or separation, or insurmountable debt such as mounting medical bills. Interest rate increases can also be the culprit. If the borrower has an adjustable-rate mortgage and interest rates rise, the monthly mortgage payment goes up, too. What was once an affordable payment can turn into an overwhelming financial burden. When that happens, the borrower may have no choice but to default. Weak housing prices also come into play. As a last-ditch effort, a borrower may try to avert foreclosure by selling his or her home. However, in a weak housing market, that can be difficult or next to impossible. And if the borrower is underwater (owes more than the house is worth) the sale proceeds may not be enough to pay off the mortgage. In many cases, a borrower who is stretched too thin can keep up the payments when the economy is good. But it’s easy to fall into default as soon as there’s an economic downturn.
What do words used in a foreclosure mean?
Understanding the legal terms used with foreclosure can help you help yourself. Some definitions are:
• DEFAULT – A mortgage or contract is in default and foreclosure proceedings can begin as soon as you are late on one payment. Depending on the language in your loan documents, the lender may have to give notice before beginning a foreclosure.
• DELINQUENT PAYMENT – A mortgage payment is delinquent when it is not made on the day that it is due or within any “grace period” allowed by the lender.
• FORBEARANCE – An agreement where the lender agrees not to foreclose if you catch up your past due payments over a period of time. These payments will loan current.
• FORECLOSURE SALE – The forced sale by which your lender sells your property to pay your loan. A foreclosure sale has a bad affect your credit rating and future loans. The foreclosure sale takes place at the county courthouse.
• DEED IN LIEU OF FORECLOSURE – To avoid foreclosure when you know you will be unable to make your payments, you may consider handing over your deed to the lender. This is also called voluntary repossession. It means you are giving your house back to the lender. This may still affect your credit rating, but you may be able to avoid the cost of the foreclosure process.
• JUDGMENT – This is an order saying you owe money to the lender. The lender is then able to get the money through a foreclosure sale. In a non-judicial foreclosure your lender is not required to obtain a judgment before holding a foreclosure sale.
• DEFICIENCY JUDGMENT – A lender may be able to obtain additional money from you to recover their losses if the house sells for less than loan and cost to recover the money.
How can I avoid foreclosure?
To avoid foreclosure, pay your monthly mortgage. The lender does not want to foreclose on your property because it takes time and money to go through the process.
What if I can’t make a house payment?
If you cannot make a payment, it is important to contact your mortgage company to agree to make payments. Be sure to get any payment plan in writing. Discuss with your lender how much you owe and how long it will take to catch up on any missed payments. Be prepared to answer
• why you fell behind on your payment,
• what your current financial resources are, and
• if you have a realistic plan for repaying the money you owe.
If you go to your lender with a good attitude and are honest, your problems will likely be easier to solve. You may also ask your lender about modifying the loan. That might reduce your monthly payments to an affordable level.
When a trust deed or mortgage goes into default, the lender has the right to declare the entire balance of the loan due and file a lawsuit to collect the debt. To foreclose on the property in this manner, the mortgage holder must file a summons and complaint and serve them on you. You must file a response to these papers in court. It is not a defense that you cannot afford the payments. Once the mortgage holder has a judgment against you, a sheriff can serve an order called a writ of execution that allows your house to be sold to satisfy what you owe on the mortgage. Once the property sells, you have six months to redeem the property. To redeem the property, you must pay the amount the property was purchased for at the foreclosure sale plus any costs incurred by the mortgage holder, plus a 6% redemption fee. If you do not redeem the property, the purchaser will get a deed after six months. You will have to move out. You do not have to pay rent during the six month redemption period. The mortgage holder is entitled to a deficiency judgment if the foreclosure sale price is less than the full amount owed. Unlike the trust deed foreclosure, the mortgage holder is entitled to judgment based on the price of the property at the foreclosure sale rather than the fair market value of the property at the time of the sale.
Notice of Foreclosure Lawyer
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506