Foreclosure is a legal process that involves the lender or servicer of your home mortgage payments to seize your home if you fail to make the payments. It allows the lenders to recover the balance owed on a defaulted loan by owning and selling the mortgaged property as collateral. Your loan servicer is the company that handles your mortgage account, but it may not be the company that either issued or currently owns the loan.
Before your lender decides to foreclose on your home, they must do a loss mitigation. They must contact you, inquire about the first missed payment, and try to work with you before issuing a foreclosure.
Doing this before can prevent foreclosure because a designated time allows the borrower to gather the funds and make the necessary mortgage payments. Loss mitigation is the process by which you and your lender work together to try and avoid foreclosure.
Remember, a foreclosure process cannot begin without a waiting period. This means your payments must be at least 120 days past due. Also, there must be a notification informing you about the possible foreclosure and your options to mitigate it.
What Is the Right to a Breach Letter?
The mortgage contract contains a clause that mandates that lenders send a written notice to the borrower, and it is referred to as a “breach letter” to inform them when they are in default. The breach letter must include the following information:
- Information regarding the default and the causes;
- Steps to take to reinstate the loan;
- The time frame allowed by the lender to cure the default (usually from the date you receive the notice); and
- Notice that failure to cure the default on time will result in the sale of the property.
To prevent a foreclosure, you must pay the entire past-due amount by the date shown in the breach letter. This may include any additional back interest, late fees, and penalties. If you fail to do so and do not have another plan to repay the loan, the foreclosure proceedings will start.
What Is a Judicial Foreclosure?
There are regulations in place when it comes to dealing with foreclosures. Certain notification rights must be followed before deciding to foreclose on any property. The homeowner is entitled to receive a notice of a pending foreclosure, no matter which state you reside in. For a judicial foreclosure, a complaint and a summons must be sent to notify the homeowner that the foreclosure has started. However, you may receive the following two notices if it is a nonjudicial foreclosure.
First, there is a notice of default (NOD); a nonjudicial foreclosure begins once the notice of default is recorded at the county office, which varies by each state. The NOD is meant to serve as a public notice to show you are in default. It contains information regarding the borrowers, lender, trustee, property, default, and action required to cure the default. If the default fails to be cured by the set deadline, then the lender will sell the property at a public sale.
Furthermore, the notice of sale (NOS) can be mailed to you, published in a local newspaper, posted on the property, and recorded in the county land records. It details the property, a statement that it will be sold at a public auction, and information about the foreclosure sale.
If, for any reason, any of the notices mentioned above are not provided to the homeowner, the homeowner will have a claim against the foreclosure. All lenders must adhere to the local foreclosure laws to proceed with sales. Although providing inadequate notices by the lenders may not prevent foreclosure, it may give you some time to make your payments current.
What Is a Foreclosure Sale?
A foreclosure sale is considered the final stage of a foreclosure legal process. Once the lender seizes the property after a foreclosure, the mortgaged property is sold at auction or transferred back to the lender. The main purpose of a foreclosure sale is that the lender recovers all or some of the money on a defaulted loan.
There are three types of foreclosure legal processes that we will briefly review. The first is judicial foreclosure, which is used in many states, and this process involves the lender filing a lawsuit against the borrower. A judicial order was placed for the sheriff to conduct the sale of the property at auction. Another type of foreclosure is the power of sale, permitted in many states. It can be utilized if the mortgage has a power of sale clause. In this scenario, the mortgage company handles the sale at auction without the involvement of the courts.
Finally, the final type of foreclosure is known as strict foreclosure, which is only permitted in a few states. This is also a judicial foreclosure, with the difference that the court will order that the ownership of the property is transferred back to the lender instead of being sold at auction.
What Are the Stages of a Judicial Foreclosure?
Some basic stages occur when the foreclosure process is judicial. The default is initiated once the borrower does not make one of the monthly loan payments. When the borrower misses one payment, the lender sends a missed payment notice informing them that the payment is due. Once the borrower misses two or more payments, the lender may send a demand letter requiring the payment of the missed monthly payments.
Many mortgages mandate that the breach letter be sent before starting the property foreclosure. The contents of this letter will indicate the borrower is in default on the loan and provide a period to rectify the default along with any new payment conditions as needed.
If the homeowner cannot rectify the loan and make payments within the specific period, the lender will proceed with the foreclosure process, as stated earlier. The lender will file a lawsuit against the borrower in state court. The court will serve the borrower to inform about the complaint for foreclosure. Then, the borrower will have approximately 30 days to respond to the complaint. These regulations may vary depending on which state you reside in.
If the borrower fails to respond to the complaint promptly, the judge will automatically issue a judgment permitting the sale of the property at auction. However, if the borrower does respond, the case will eventually go to trial.
The county sheriff usually makes the foreclosure sale, and the property is sold at auction to the highest bidder. There is a redemption period between the foreclosure judgment and the sale confirmation; not all states have this. During the redemption period, the borrower can bring the defaulted loan current in one payment by paying all the missed payments. This will end the foreclosure process and allow the borrower to stay in the property.
When the foreclosure sale is confirmed, the borrower must leave the property. Remember, foreclosure sale appears as a negative event in the borrower’s credit report and will remain for up to seven years.
When Do I Need to Contact a Lawyer?
You may encounter some hurdles if you want to purchase a foreclosure property. As mentioned above, there is a process for the foreclosure sale to go through. You can contact a local foreclosure lawyer to help you with your purchase if you need assistance. Also, there are differences in the rules depending on what state you reside in.
