Individuals obtain a mortgage when they wish to purchase a piece of property but do not have the cash available to purchase it outright. In that case, the individual will be offered a loan to purchase the property. A mortgage is provided by a mortgage lender, usually a bank.
A mortgage is a security interest that is attached to real property. The property is collateral for the mortgage loan that the borrower took out to purchase the property. A mortgage is placed on the property so that if the borrower defaults on the loan, the mortgage lender has the right to take possession of the property.
A mortgage transaction includes two important documents: the promissory note and the mortgage (also called a deed of trust). A promissory note is a contract. The terms of the promissory note typically state that one party will promise to repay a specific amount of money to the lending party in a specified time frame. The promissory note holds the borrower responsible for repaying the loan even if they sell the property.
The mortgage acts as a lien on the property. If the borrower fails to repay the loan, the financial institution that provided the funds for the purchase of the home may force the borrower to repay the loan or else the property will be sold so that the loan will be at least partially paid. The deed of trust guarantees that the lender will recoup some of their money even if it is not the borrower who makes the payments.
What Is a Foreclosure?
When a borrower purchases a home and obtains mortgage financing (usually from a bank), they sign a contract that states that their home serves as collateral for the loan and can be repossessed if the borrower does not make payments as required.
After a certain number of missed payments (the number is set forth in the contract), the mortgage lender has the authority to seize the property from the homeowner and sell the property in order to recover the debt owed on the mortgage.
In some cases, a lender will allow a grace period in which a borrower can make a payment to avoid foreclosure. This period, however, is typically only a couple of months. In many cases, if the borrower is behind on payments, it is difficult to catch up due to late fees.
Foreclosure is the legal process by which the lender takes possession and ownership of the home when the homeowner has failed to make their required mortgage payments. After this, the homeowner will be evicted from their home by the lender. Foreclosure is often devastating because it results in an individual or a family losing their home.
There are two different types of foreclosures: (1) non-judicial foreclosures and (2) judicial foreclosures. A non-judicial foreclosure, also called a foreclosure by power of sale, is accomplished without court intervention. The lender sells the mortgaged property by themselves to recover the money owed on the mortgage. This foreclosure option is only available in some states. An attorney can advise you if this type of foreclosure is legal in your state.
A judicial foreclosure requires intervention from a court in order to sell the property. This type of foreclosure is available in every state.
What Are the State Laws Governing Foreclosure?
As noted above, every state has its own rules and regulations regarding foreclosure. In all states, several steps must be taken before the lender takes possession of the property by foreclosure.
In 22 states, judicial foreclosure is the main process for foreclosing on a property. In a judicial foreclosure, the lender must show the court that the borrower failed to make monthly mortgage payments. If the court approves a foreclosure, the local sheriff will auction the property to the highest bidder to repay what is owed to the lender.
What Is a Power of Sale Provision?
If an individual resides in a state that allows non-judicial foreclosures, they most likely signed a deed of trust with a power of sale provision when they took out the mortgage.
If a power of sale provision was included, the mortgage company could foreclose on an individual’s property without court approval if they are delinquent on their payments.
What Is the Timeline for a Non-Judicial Foreclosure?
If an individual resides in a state that permits non-judicial foreclosure, there is a timeline that will likely be followed. As noted above, a non-judicial foreclosure does not require court involvement.
The non-judicial foreclosure process timeline will vary by jurisdiction. However, a general timeline is discussed below. It is essential for a borrower to be familiar with the timeline to preserve their rights.
The first missed payment is often not cause for alarm. Typically, a loan officer will contact the individual and ask when they can make the payment. In some cases, they will send a notice.
The second missed payment is a larger issue than the first. If an individual misses their payment for two consecutive months, the loan officer will contact the individual again. In these cases, the loan officer may request immediate payment of amounts over the phone.
By the third missed payment, the individual is usually considered in breach of the mortgage contract. At this time, the loan officer will send a letter notifying the individual of the breach and demanding they pay the remainder of the mortgage balance, not just the missed payments. If the borrower cannot make payment, the loan company will exercise the contract’s loan acceleration clause, which requires the borrower to pay the loan balance within 30 days or the foreclosure process will begin. At this point, it is unlikely that the lender will accept partial payment.
It is important to know the 30 days and when they expire. 30 days after notice is provided, if the borrower has not paid the remainder of the balance, the loan company will notify a trustee to begin the foreclosure process.
A trustee will begin the foreclosure process by recording a notice of default with the county’s assessor’s or recorder’s office. Additionally, the trustee will formally notify the individual of the delinquency.
Next, a foreclosure sale will be arranged. The sale will occur at an auction on a specific date and time. At the auction, the property is sold to the highest bidder.
Depending on the state laws that are involved, there may be a redemption period following the foreclosure sale. This gives the borrower a specific amount of time to buy back the property from the foreclosure auction.
If an individual does not vacate the property after the deed is transferred to the new owner, the new owner may have to start an eviction process. After this process, the sheriff’s office will remove the individual and their belongings, forcefully if necessary.
Do I Need an Attorney for a Non-judicial Foreclosure?
Yes, it is essential to have the assistance of an experienced foreclosure attorney for any non-judicial foreclosure issues. An attorney will be familiar with the laws of your state and be able to advise you of your rights during the process.
Your attorney may also be able to help you negotiate with the lender to prevent the foreclosure from proceeding. Having an attorney on your side may be the difference between keeping and losing your property.
