The mortgage method differs from state to state. The notifications a lender must post publicly, the homeowner’s options for bringing the loan current and preventing foreclosure, and the timetable and procedure for selling the property are all governed by state laws.
After a lengthy pre-foreclosure period, a foreclosure—as in the act of a lender taking a property—is usually the final phase. Prior to foreclosure, the lender can provide many options to prevent foreclosure, several of which may mitigate the negative effects of foreclosure for both the buyer and the seller.
Judicial foreclosure is the rule in 22 states, including Florida, Illinois, and New York. This is when the lender must go and court to obtain permission to foreclose by demonstrating that the borrower is in default. If the mortgage is accepted, the property is auctioned off to the highest bidder in an attempt to recoup the money owed to the bank, or the bank becomes the owner and sells the property in the usual manner to recoup its losses.
Non-judicial foreclosure, also known as the power of sale, is used mainly in the other 28 states, including Arizona, California, Georgia, and Texas. This form of foreclosure is usually quicker than judicial foreclosure because it doesn’t go through the courts unless the homeowner files a lawsuit against the lender.
How Long Does Foreclosure Take?
According to the U.S. Foreclosure Market Report from ATTOM Data Solutions, a property data provider, properties foreclosed in the third quarter of 2020 (the most recent data available) spent an average of 830 days in the foreclosure phase. This is up 21.1 percent from the previous quarter’s average of 685 days in the foreclosure process, but down marginally from the previous quarter’s average of 841 days.
Because of differing laws and foreclosure schedules, the total number of days differs by state. In the third quarter of 2020, the states with the longest average number of days for assets foreclosed were:
States with the shortest average times to foreclose during the same period were:
Can You Avoid Foreclosure?
And if a borrower has skipped one or two payments, there might be options to prevent foreclosure. Among the alternatives are:
Reinstatement: The borrower will pay back what he or she owes (including late payments, interest, and any penalties) by a specific date to get back on track with the mortgage during the reinstatement process.
Short refinance: The new loan sum is less than the unpaid balance, and the lender can forgive the difference to help the borrower avoid foreclosure.
Special forbearance: The lender may agree to reduce or delay payments for a fixed period of time if the borrower is experiencing a temporary financial hardship, such as medical bills or a reduction in income.
Discrimination in mortgage lending is against the law. There are steps you can take if you believe you’ve been discriminated against because of your race, faith, sex, marital status, use of public assistance, national origin, disability, or age. A report to the Consumer Financial Protection Bureau or the US Department of Housing and Urban Development is one such move (HUD).
Consequences of Foreclosure
Lenders—often banks—take possession of a property if it fails to sell at a foreclosure sale or if it never went through one in the first place. They can then add it to a portfolio of foreclosed assets, also known as real-estate owned (REO). Banks’ websites usually include listings for foreclosed assets. Real estate buyers may be attracted to such assets because banks often sell them at a discount to their market value, which, of course, hurts the lender.
A foreclosure occurs on a borrower’s credit report within a month or two of the first overdue payment, and it remains there for seven years. The foreclosure is removed from the borrower’s credit report after seven years.
President Joe Biden, on the other hand, on Tuesday extended a three-month moratorium on home foreclosures for federally insured mortgages and expanded a mortgage insurance initiative in an effort to address the nation’s housing affordability crisis in the wake of the COVID-19 pandemic.
The foreclosure moratorium was supposed to end on March 31, but it has been extended until June 30. It’s the second time Biden has extended the ban, following his use of one of his record-breaking number of Day One executive orders to push back the previous deadline of Jan. 31.
The Biden administration also announced on Tuesday that the enrollment period for requesting a mortgage payment forbearance – which enables homeowners to delay or reduce their mortgage payments – has been extended until June 30. This program was also set to end in March.
The federal government would encourage homeowners to delay mortgage payments for another six months as a result of a third action. By the end of June, qualified homeowners had to have enrolled in a forbearance scheme.
There are 11 million government-backed mortgages in the United States. COVID-19 forbearance programs have about 2.7 million homeowners enrolled.
Biden is dedicated to protecting homeownership and housing security throughout the pandemic, according to the White House, which calls the expanded forbearance and mortgage initiatives “a significant move toward creating stronger and more equitable societies.”
The expanded protections, according to the White House, are aimed in part at prioritizing communities of color that have been hit hardest by the pandemic. Homeowners of color account for a disproportionate share of those that have defaulted on their loans or are in forbearance plans.
However, the actions did not fix the federal ban on evictions for nonpayment of rent imposed by the Centers for Disease Control and Prevention. The moratorium will also end on March 31. Renters account for approximately one-third of all Americans, or 107 million people.
According to a White House official, the Biden administration has been consulting with stakeholders to decide their next steps on the eviction scheme but did not provide further details.
Preventing foreclosures and evictions predates the Biden government. The moratorium on federally funded foreclosures was last extended in August by former President Donald Trump. In September, Trump announced a four-month moratorium on evictions for landlords who are unable to make payments through the CDC.
Biden also introduced a $10 billion Homeowners Assistance Fund in his $1.9 trillion COVID-19 relief plan, which he is urging Congress to enact in the coming weeks. The fund will provide states with federal assistance to support homeowners with mortgage payments and heating costs.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, last week issued a three-month forbearance extension to borrowers nearing the end of their forbearance plans. According to the White House, the actions collectively cover 70% of existing single-family home mortgages. None apply to the 30% of mortgages that are privately owned.
More than 10 million adults live in a household that is not caught up on mortgage payments, according to the Center on Budget and Policy Priorities, citing the U.S. Census Bureau’s Pulse Survey.
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