When a person borrows the money to buy a home from a bank, they sign a loan contract that contains the provisions of the agreement between the borrowers and the bank. Typically, the borrower agrees to pay back the money loan, usually in monthly installments, with interest, over a set period of time. The life of a loan is usually 15 or 30 years. There are several different types of mortgages available for people who want to purchase property or refinance their current home.
The mortgage contract gives the lender a security interest in the real property that was purchased with the loan proceeds. It also provides that if the borrower fails to make the monthly mortgage payments as promised, the bank lender can evict the borrower from the home and then sell the home. The lender then uses the proceeds from the sale of the home to pay the loan. If the proceeds from the sale are not enough to pay the loan in full, then the borrower may still owe the bank the amount of the loan that remains unpaid.
The process through which a lender takes possession of a home and sells it to pay off the loan is called “foreclosure.”
State law specifies the legal procedure for foreclosures in the state. The law usually requires the bank to give the person notice of the fact that they have the missed loan payments and about the foreclosure process that can follow if the person is not able to resume making payments. A bank is generally willing to work with a person who falls behind on their mortgage payments in order to help them preserve their ownership of their home. A person may fall behind on their mortgage payments because they have other unexpected expenses or lose their job.
What Are the Different Types of Foreclosures?
Bank foreclosures are often categorized as either “foreclosure by power of sale” or “judicial foreclosure.” In foreclosure by power of sale, a bank has reserved the power to sell the property if the borrower fails to make payments as promised in the loan agreement.
The other kind of foreclosure that is practiced in many states is judicial foreclosure. This is a foreclosure that requires the lender to go to court and when a default on loan payments is proven, the court oversees and executes the sale of the property. The court may also regulate the terms of the foreclosure sale.
Different states use one or the other of these types of foreclosure. For example, in Florida a foreclosure begins when a lender files a complaint in civil court and records a notice of a pending lawsuit against the property. This is the beginning of a judicial foreclosure.
The lender notifies the borrower in person of the lawsuit. If the borrower does not respond to the court action within a specified amount of time, the court can find the borrower in default and the lender asks the court to enter a final judgment against the borrower. If the court rules against the borrower, the ruling will include the total amount owed to the lender and the date of the foreclosure sale.
The lender is not required by state law to notify the borrower before initiating the foreclosure process, but individual mortgage contracts or deeds of trust might call for this. The borrower can stop the foreclosure up until the date of the sale by paying the total amount owed to the lender. Of course, it is always possible that a borrower could negotiate a different resolution with the lender.
The sale date is typically 20 to 35 days after the court ruling, but this would depend on many factors, including the court and whether it is a time when there are many foreclosures or relatively few. The clerk of court issues a notice of sale with the location, date, and time of the sale and also publishes the notice once a week for two weeks. The second notice must be published at least five days before the sale.
The clerk usually oversees the sale, which ordinarily occurs at the county courthouse. The winning bidder provides a 5-percent deposit and pays the remaining balance by the end of the day or a new sale is scheduled a minimum of 20 days later. The winning bidder is given a certificate of sale and ithin 10 days of the sale, ownership is transferred by the clerk. Generally, after the certificate of sale has been issued, the borrower has no right of redemption and loses any chance of regaining possession of the property.
In Maryland, to begin the foreclosure process, a lender must file a complaint in court against the borrower and get a decree of sale from a court in the jurisdiction where the property is located. The court then determines whether the borrower has defaulted on the loan.
If the court finds that the borrower has defaulted on their mortgage payments, it will determine the amount of the debt that is owed, the interest owed, and costs due. The court then gives the borrower a reasonable time to pay the debt, interest and costs. The court may order that if the borrower does not make payments within a certain period of time, the property must be sold to pay the debt.
The lender is not required to notify the borrower of the pending foreclosure proceedings before the court sets a date for sale of the property. This differs from some other states where some type of notification must be sent to the borrower before any sale date is scheduled.
The trustee must publish a notice of sale in a local newspaper of record for three consecutive weeks and also send a notice of sale to the borrower and any other lien holders at least 10 days before the date of the sale.
The sale is conducted by a licensed auctioneer and typically takes place outside the courthouse. After a bidder has won the auction, a notice that the sale has been made is published in a local newspaper and anyone who may be interested is advised that objections must be made within 30 days. If no one files an objection, the sale is confirmed by the court. Ownership of the property ownership is then transferred to the new owners, the winning bidder.
How Can I Avoid a Bank Foreclosure?
Bank foreclosures can sometimes be avoided through a negotiation with the lending bank. For instance, a person, or their representative, may attempt to negotiate a different monthly payment so that the person is able to continue making the payments given their changed financial circumstances.
Or, a person may be able to refinance their mortgage. Refinancing is basically getting a new mortgage loan to replace the one the person has in place. If mortgage interest rates have gone down in the time since the person obtained their existing loan, it might be possible to reduce their monthly mortgage payment to a more manageable amount.
Foreclosure can also be avoided by keeping up with payments in the first place. Sometimes, a person misses mortgage payments as the result of poor financial planning. Or they may not understand the importance of giving priority to paying their mortgage even if it means cutting other spending, if that is at all possible. For example, overspending with credit cards can cause unnecessary debt. A person may wish to speak with a credit counselor or an attorney, if they need more help in identifying options for avoiding foreclosure.
Do I Need a Lawyer for Help with Bank Foreclosures?
Bank foreclosures are a common occurrence for many people. If you are having a problem paying your mortgage, you should consult a foreclosure lawyer. It is better to consult a lawyer as soon as a problem develops, rather than waiting until you have missed many payments and foreclosure is just around the corner.
Your attorney can help you work to negotiate a solution with your bank or your lawyer can represent you as needed during any court hearings that are required. Also, your lawyer can identify possible options that might be available to you, e.g. bankruptcy, or possibly working with other creditors to reduce the payments you make to them, so you can start making your mortgage payments again. Acting promptly is your best strategy.
