Foreclosures are divided into two categories. A judicial foreclosure is one that takes place in front of a judge and allows the homeowner to appeal the foreclosure. A non-judicial foreclosure does not necessitate the involvement of a judge. State-by-state, the form of foreclosure and the mechanism used can vary. Regardless of the form of foreclosure or the state, there are five phases to the method.
Stage 1: Missed Payments
The process of foreclosure starts with overdue payments, regardless of whether a homeowner is facing foreclosure. When a homeowner starts making payments, they are no longer fulfilling their obligations under the loan, and the lender has the right to come after them. Many homeowners are unaware that the foreclosure process can be costly for the lender, so they would try to stop it if at all possible. Lenders are usually able to negotiate with homeowners to restructure loans and reduce or postpone payments. If the homeowner requires additional assistance, they will be able to obtain it by contacting:
Stage 2: Public Notice
The lender will send a public notice to the County Recorder’s Office or file a complaint with the court if the homeowner misses 3–6 months’ worth of payments. The public notice, also known as a Notice of Default (NOD) or lispendens (suit pending), is a written notice to the homeowner that the lender will take legal action if the debt is not paid.
Stage 3: Pre-Foreclosure
The pre-foreclosure stage starts after the lender files the public notice, and the home enters the early stages of repossession. The homeowner usually has 90 days to take action at this stage. They have a few options if they want to avoid foreclosure and eviction:
A short sale is when a homeowner sells their house until it goes into foreclosure. The selling price is normally “short” of the balance owed, hence the name “short sale.” When this occurs, the seller receives the entire selling proceeds, and the sale cannot take place until the lender accepts it. For both the homeowner and the lender, a quick sale is typically the best option. It would have a less negative impact on the homeowner’s reputation and ability to secure a potential mortgage. A short sale allows the lender to recover as much of the loan balance as possible while minimizing the costs of foreclosure. Both parties profit even more if the property sells for the sum owed. The lender is able to recoup its entire investment, and the homeowner avoids a credit strike. If the selling price exceeds the amount owed, the homeowner will receive any remaining funds after the debt is paid off.
A deed in lieu of foreclosure is another choice for all parties to prevent foreclosure. The homeowner knowingly signs the deed over to the lender or bank and is relieved of all mortgage obligations in this agreement. Again, preventing foreclosure can have a positive impact on the homeowner’s reputation and mortgage eligibility. The lender will be able to save money and time by avoiding the costs and time involved in the foreclosure phase. It can, however, approve a deed in lieu of foreclosure only if the homeowner is unable to sell the home in a short sale and there are no other liens against the house. Even so, the lender may reject your bid.
If the homeowner is unable to sell the home in a short sale, make up the missed payments, or seek a deed in lieu of foreclosure, the property will be auctioned off.
Stage 4: Auction
The mortgage investor or its agent, the trustee, will bring the house up for sale when the time comes. The auction, also known as a trustee sale, is open to the public and usually takes place on the county courthouse steps, in a meeting room or convention center, or even online. A Notice of Trustee’s Sale (NTS) will be sent to the homeowner and the general public prior to the auction, including details such as the date, time, and place.
Every auction would be different because the mortgage lender, loan terms, and strict state rules govern the policies of the auction. Processes and standards would, however, be identical.
The minimum bid at an auction is usually set at the loan balance owed, and the foreclosed home is sold to the highest bidder. The individual must pay the entire sum in cash or make a substantial deposit right away. Even if the highest bidder wins the auction, that does not guarantee that they will own the house. In certain states, the former owner has a “right to redemption,” which allows them to purchase their home after it has been auctioned. They will typically be required to pay the entire selling price or loan balance, as well as any interest and costs incurred by the bank during the transaction. A homeowner’s right of redemption can be valid up to the time the court clerk files the certificate of sale, or up to one year after the sale, depending on state laws and the form of foreclosure.
Stage 5: Post-Foreclosure
If the home was bought at auction, the previous owner must vacate the property, and the new owner is free to do whatever they want with it. Some people choose to live in the house permanently, while others choose to rent it out or sell it for a profit.
Frequently, the home does not sell at auction because the mortgage lender refuses to accept any offers or the pool of cash buyers is small. The foreclosed home becomes a bank-owned house, also known as real estate-owned property when this occurs (REO). As previously mentioned, an REO is not the same as a foreclosed home. A house that is in foreclosure is being repossessed by the bank, while an REO is a home that has already been repossessed by the bank. The bank is the sole owner of the property in an REO.
The bank, as the home’s owner, is responsible for paying property taxes. When you factor in the costs of foreclosure and the money lost due to default, it’s easy to see why the bank will want to sell the REO home as soon as possible. A motivated seller, on the other hand, does not necessarily imply that the home would sell for a bargain. When purchasing a home at any point of the foreclosure process, keep this in mind.
For information on foreclosure defense call us at (877) 399 2995. We offer litigation document review support, mortgage audit reports, securitization audit reports, affidavit of expert witness notarized, and more.