A foreclosure is a judicial proceeding where the lender, which is often a bank, takes possession of a home or property due to the homeowner failing to keep up with their mortgage payments. After the borrower misses a certain number of payments, the lender may seize the home or property and sell it in order to recover what is still owed on the mortgage.
A foreclosure by sale is a process whereby a home or property is sold at a public auction in order to satisfy the debt in whole or in part. There are judicial and nonjudicial foreclosure sales which may occur.
In a judicial sale, intervention from a court is required in order to sell the mortgaged property. This process is available in every state.
A nonjudicial foreclosure, on the other hand, is not available in every state. It is also known as a foreclosure by power of sale. In this type of foreclosure, the lender is permitted to sell a mortgaged property directly in order to recover any money which is still owed.
No matter which type of foreclosure process the lender uses, once it is complete, the home or property belongs to the lender. Depending on the state in which the foreclosure is occuring, the law may permit the borrower to reclaim their home.
What does the Foreclosure Process Involve?
Although the foreclosure process may vary from state to state, in general, it is very straightforward. The process typically lasts six months. The length of the process depends on whether a foreclosure is a judicial or nonjudicial sale.
The steps, in general, are as follows:
- Pre-foreclosure;
- Notice of default;
- Foreclosure auction; and
- Post-foreclosure.
A property is in pre-foreclosure after a borrower fails to make two to three mortgage payments, which is generally 30 to 60 days. When a property is in pre-foreclosure, a lender will typically send a demand letter which demands full and immediate payment of the loan, in addition to any legal and late fees incurred. The borrower then has 30 days to make the payments on the debt which is owed or the process of foreclosure will be initiated.
After the borrower has failed to pay for 90 days, the foreclosure process enters into the legal process. At this stage, the bank will issue a notice of default to the local sheriff to deliver to the borrower. This notice of default will be recorded by the government agency and a date will be chosen for the foreclosure auction.
The public foreclosure auction will be held on the specified date and the property may be sold to the highest bidder. The lender that issued the default may also purchase the property and sell it independently at a private sale. At this time, the borrower must vacate the property or an unlawful detainer action will be filed in order to evict the homeowner if they are still residing on the property following the sale.
In the post-foreclosure period, if the proceeds of the sale are insufficient to satisfy the debt that is being foreclosed upon, a lender may claim a deficiency judgment and require the borrower to pay the difference. In some states, a borrower may have the right to redeem the property following the foreclosure by paying the entire sales price.
What is the Right of Redemption?
At any time prior to the foreclosure sale, a borrower, or mortgagor, may redeem the property by paying the amount which is due. This is called the right of redemption. If a mortgage contains an acceleration clause, the full balance due on the mortgage must be paid in order for the borrower to redeem the property.
What can I do to Avoid Foreclosure?
The best way to avoid foreclosure is simply to ensure that mortgage payments are made in full, regularly, and by their due date. There are also, however, several other ways in which a homeowner can avoid foreclosure proceedings before they happen, including:
- Attempting to work with the lender;
- Changing the terms of the loan;
- Requesting a forbearance;
- Selling the house; and
- Filing for bankruptcy.
It is important to try and work with a lender and not to avoid the lender if an individual is going to miss a payment or is behind on making their regular payments. A lender usually wants to avoid foreclosure proceedings at all costs so discussing the issues with the lender may lead to a solution prior to foreclosure becoming a possibility.
Changing the terms and period of the loan may also be a solution. This may extend the life of the loan, but it will lower the payments which may make regular payments easier to make. A modification of the interest rate may be risky because they often start low and then increase over the life of the loan.
If an individual is having trouble making payments, they can request a forbearance. A forbearance allows an individual to stop making payments for a specified period of time.This may help the individual save money during that period and make a lump sum payment at the end of the period.
Prior to a foreclosure proceeding commencing, an individual may consider selling their house. This way, the borrower is in control of the sale instead of the lender and the proceeds may be used to pay the remaining balance of the mortgage while also providing the borrower with a profit.
Although it may not be the best option, filing for bankruptcy may allow a homeowner that is in severe debt to avoid the foreclosure process. A Chapter 7 bankruptcy will discharge the debt owed on the home and stall the foreclosure process.
In a Chapter 7 bankruptcy, however, the individual would not be able to keep their home because the proceeds would be distributed to other creditors. If an individual does wish to keep their home, they may wish to file a Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, an individual can temporarily stop a foreclosure process and force the lender to agree to a repayment plan that the borrower can afford. This method allows the borrower to keep their home, but they must repay the debt over time.
In What Ways has COVID-19 the Pandemic Affected the Foreclosure Process?
The COVID-19 pandemic has had a substantial effect on the foreclosure process. During this time, many individuals have experienced a reduction in income, and, as a result, may face housing instability.
The federal government initially responded to the COVID-19 related potential housing crisis by implementing protections for mortgage loan borrowers with the Coronavirus Aid, Relief, and Economic Security (CARES) Act. To a certain extent, a borrower is protected if their mortgage is federally guaranteed.
There was a foreclosure moratorium for federally guaranteed mortgages which ended on June 30, 2021. An eviction moratorium is currently in place through September 30, 2021 for foreclosed loans from lenders including:
- Fannie Mae;
- Freddie Mac;
- The FHA;
- The VA; and
- The USDA.
Although many federal protections have ended or are scheduled to end soon, some state governments have also implemented their own eviction and utility shut off moratorium laws. The Consumer Financial Protection Bureau (CFPB) made it mandatory for loan servicers to increase their efforts to assist homeowners who have been affected by the pandemic.
It is important to note that these protections do not relieve the borrower of their obligation to pay their mortgage after the protection ends. It merely suspends the ability of lenders to file new foreclosures or to enforce orders to vacate property. This also applies to protections for utility shutoffs.
It is also important to note that private lenders are also providing borrowers with protections if they are suffering during the COVID-19 pandemic and are unable to make mortgage payments. A borrower should contact their lender to determine what protections are available and what the steps are for obtaining those protections during this time.
How can a Lawyer Help with Foreclosure?
It is very important to have the help of a foreclosure lawyer if you are facing or are involved in a foreclosure. It is important to consult with an attorney as soon as possible to determine your available courses of action and avoid the foreclosure process.
Your attorney can review your situation, determine what options you have, and advise you if bankruptcy is an available option for you.
