A foreclosure is a judicial action in which the lender, usually a bank, takes ownership of a home or property due to the homeowner’s failure to make mortgage payments.
After a certain number of missed payments, the lender may take and sell the home or property to recover what is still outstanding on the mortgage.
A foreclosure by sale is a process in which a home or property is sold at a public auction to pay off a debt in full or in part. There may be both judicial and nonjudicial foreclosure sales.
A judicial sale necessitates court action in order to sell the mortgaged property. This procedure is offered in all 50 states.
In contrast, nonjudicial foreclosure is not available in every state. It is also known as a power of sale foreclosure. In this sort of foreclosure, the lender is allowed to sell a mortgaged property immediately in order to recover any outstanding debt.
Regardless of the type of foreclosure process used by the lender, once completed, the home or property belongs to the lender. Depending on the state where the foreclosure is taking place, the borrower may be able to reclaim their home.
What is the Foreclosure Procedure?
Although the foreclosure procedure varies from state to state, it is generally simple. The procedure usually takes six months. The length of the procedure is determined by whether the foreclosure is judicial or nonjudicial.
In general, the steps are as follows:
- Pre-foreclosure;
- Default notice;
- Foreclosure auction; and
- Post-foreclosure
A property is in pre-foreclosure when a borrower fails to make two to three mortgage payments in a 30- to 60-day period.
When a home is under pre-foreclosure, a lender would often send a demand letter demanding full and immediate payment of the loan, as well as any legal and late penalties. The borrower then has 30 days to make payments on the due debt, or the foreclosure procedure will begin.
The foreclosure process begins when a borrower fails to make a payment for 90 days. At this point, the bank will issue a default notice to the local sheriff for delivery to the borrower. The government agency will record this notice of default, and a date for the foreclosure auction will be set.
A public foreclosure auction will be placed on the designated date, and the property may be auctioned to the highest bidder. The lender that issued the default may also buy the property and sell it at a private sale.
At this point, the borrower must depart the property, or an unlawful detainer action will be initiated to evict the homeowner if they remain on the property after the sale.
Suppose the profits of the sale are inadequate to fulfill the debt being foreclosed upon. In that case, a lender may claim a deficiency judgment and demand the borrower to pay the difference during the post-foreclosure term. In some states, a borrower may be able to redeem the property after foreclosure by paying the full sales price.
What Exactly Is a Foreclosed House Lawsuit?
A foreclosure lawsuit is a sort of judicial action in which one party (often the mortgage lender) seeks to assert their right to collect home payments from the borrower. These types of lawsuits typically arise when a homeowner is unable or unwilling to make mortgage payments.
A foreclosure procedure is usually initiated when a person fails to make at least four mortgage payments.
Can Foreclosed Properties Be Sold?
In foreclosure litigation, the lending institution is frequently permitted to take ownership of the home and sell it in order to recoup the missed payments. This could happen via a power of sale or a judicial sale.
A power of sale is a transaction in which the lending institution (such as a bank or mortgagor) sells the property and gets the money. A judicial sale occurs when the court steps in to sell the residence, with the proceeds going to the mortgagor (s). If the issues are hotly debated, court action may be required.
In some circumstances, the borrower may be able to avoid foreclosure (such as by modifying a mortgage agreement).
What Is a Deficiency Judgment?
A deficit judgment may be required in some foreclosure situations. This is the stage at which the court orders the mortgage borrower to make up any shortfall between the proceeds of the home’s sale and the amount outstanding on the mortgage.
Assume the individual owes the mortgage company $9,000 in debt. If a foreclosure auction only netted $8,000, a deficiency judgment may order the person to pay the $1,000 difference. Deficiency judgments are not accessible in every state or for every type of claim.
What is the Redemption Right?
A borrower or mortgagor may redeem the property at any time before the foreclosure sale by paying the amount owed. This is referred to as the right of redemption. If a mortgage contains an acceleration clause, the borrower must pay the outstanding balance on the mortgage to redeem the property.
What Can I Do to Stay Out of Foreclosure?
The greatest approach to avoid foreclosure is to ensure that mortgage payments are made in full, on time, and on schedule.
However, there are various alternative options for a homeowner to prevent foreclosure proceedings before they occur, including:
- Attempting to negotiate with the lender;
- Changing the terms of the loan;
- Requesting a forbearance;
- Selling the house; and
- Filing for bankruptcy.
If a person is likely to skip a payment or is falling behind on their monthly payments, it is critical to try to work with the lender rather than ignore the lender. Because a lender typically wants to prevent foreclosure proceedings at all costs, discussing the difficulties with the lender may result in a solution before foreclosure becomes a possibility.
Changing the loan’s conditions and duration may also be an option. This may extend the loan’s life, but it will reduce payments, making monthly payments easier. Interest rate changes can be problematic because they frequently start low and rise over the loan’s life.
If a person is experiencing difficulty making payments, they might obtain a forbearance. A forbearance permits a person to suspend making payments for a set amount of time. This may enable the individual to save money during the period and make a lump sum contribution at the conclusion.
An individual may contemplate selling their home before a foreclosure case begins. In this manner, the borrower controls the sale rather than the lender, and the revenues may be used to pay down the remaining balance of the mortgage while simultaneously giving the borrower a profit.
Although it is not always the best option, filing for bankruptcy may assist a homeowner who is deeply in debt to escape foreclosure. A Chapter 7 bankruptcy will dismiss the mortgage debt and halt foreclosure.
However, in a Chapter 7 bankruptcy, the individual would lose their home because the proceeds would be allocated to other creditors. If a person wishes to keep their home, they may declare a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy allows a person to temporarily halt a foreclosure process and force the lender to agree to a repayment plan that the borrower can afford. The borrower can keep their home under this strategy but must repay the debt over time.
Do I Need a Lawyer to Represent Me in a Foreclosed Home Lawsuit?
Foreclosure lawsuits often necessitate the services of a qualified foreclosure attorney. If you need assistance filing or defending a case, you should consult with an expert lawyer in your region. In real estate litigation, your attorney can give you experienced guidance and representation.
