Foreclosure is the legal process that occurs when a homeowner fails to make their monthly mortgage payments. A homeowner may fail to make their payments in a timely manner. In this case, they are subject to eviction from the home by the lender, who holds the legal authority to do so because of the contract signed by the buyer of the home and the seller or lender.
It is important to note that in a real estate contract, the house itself serves as collateral as stipulated in the contract. In real estate foreclosures, the home is usually sold so that the profits from the sale of the home go to the seller, bank, or lender in order to recoup their losses for the homeowner’s failure to pay on the loan.
Once the foreclosure process has been initiated by the lender, there are several different possible outcomes, depending on the financial situation of the homeowner. Importantly, once the real estate foreclosure process has begun, homeowners do not immediately lose their right to stay on their property. Generally speaking, homeowners are considered to be legal tenants until a formal eviction occurs.
Examples of common events that can happen after the foreclosure has been filed include:
- The homeowner pays off their mortgage debt or overdue payments and reclaims their house through redemption.
- Redemption is relatively rare because most people who default on their mortgage payments do not have the funds with which to reclaim their property;
- The homeowner sells their home through a short sale and pays off their mortgage debt;
- This event may take place before foreclosure is completed or filed;
- The bank or court sells the home in order to make some sort of a profit through a foreclosure auction; or
- The bank takes control of the property and begins to manage it, such as by shifting the home into a rental and allowing renters to move in.
In terms of the first example regarding homeowner redemption, many states allow for a statutory redemption period. The statutory redemption period is a time period following the final sale in which the homeowner can reclaim their house by paying for it. Although the time period for redemption varies by state, the time period for redemption is generally one year from the date of the foreclosure order.
Additionally, at any time prior to the time of the foreclosure sale, a homeowner or mortgagor may redeem their property by paying the amount that is overdue. This is referred to as the right of redemption. However, if the mortgage contract contains an acceleration clause, then the full balance on the mortgage must be paid immediately in order for the homeowner to redeem.
What Are the Types of Foreclosure?
Although the exact foreclosure process varies from state to state, the process itself is generally straightforward. Typically, the foreclosure process lasts up to 6 months. The exact process that is used depends on the type of foreclosure that is utilized. The different types of foreclosure include:
- Foreclosure by Judicial Sale: Foreclosure by judicial sale refers to a legal action in which the mortgaged property is sold under court supervision.
- A judicial sale allows all parties to be notified of the foreclosure proceedings, and the debtor is generally allowed to participate in some proceedings, which are followed by a judicial decision.
- Importantly, the sale of the property can only proceed once the court decision has been finalized.
- Foreclosure by judicial sale is the preferred foreclosure method in most jurisdictions;
- Strict Foreclosure: Strict foreclosure refers to a specific type of foreclosure by judicial sale where the court orders the mortgagor to repay their mortgage debt within a specified time period. Then, if the mortgagor is unable to pay off their mortgage debt, the mortgage holder is allowed to automatically gain title to the property.
- Strict foreclosure is only available in a limited number of jurisdictions, namely in New Hampshire and Vermont; and
- Foreclosure by Power of Sale: A foreclosure by power of sale occurs without court supervision.
- It is important to note that foreclosing without court involvement can often result in a much more efficient and quicker process. However, there are certain formal steps that must still be followed, such as notifying all necessary parties.
- Foreclosure by power of sale is not available in all states, although a majority of states do allow for the use of this foreclosure method.
How Long Does Foreclosure Take?
Once again, the foreclosure process varies from state to state. In general, the foreclosure process takes up to six months. However, the foreclosure process has recently begun taking longer as homeowners have been given more rights. As such, the process now takes an average of two and a half years.
In general, the foreclosure process is as follows:
- Pre-Foreclosure: After the homeowner fails to make two to three mortgage payments within thirty to sixty days, their property is considered to be in pre-foreclosure.
- During pre-foreclosure, lenders will send a demand letter to the homeowner, which demands that they make full and immediate payment of the loan in addition to any legal and/or late fees incurred.
- The homeowner then has thirty days in which to make the payments on the debt owed, or the foreclosure process will be officially initiated;
- Notice of Default: After ninety days of non-payment by a property owner, the bank or lender will issue a notice of default, which is delivered to the property owner by a local sheriff to the property owner.
- This default notice is recorded by the government agency, and a date will be determined for a foreclosure auction.
- A notice of default also allows investors and other homeowners to consider a short sale on their property;
- Foreclosure Auction: A public foreclosure auction allows the property to be sold to the highest bidder at the time of the auction.
- The lender may also purchase the property and sell it independently through a private sale, but everyone will have a chance to bid.
- Prior to a foreclosure auction, the homeowner must vacate the property, or an unlawful detainer will be filed in order to evict the homeowner if they are still living on the property after the sale; and
- Post-Foreclosure: The foreclosure sale’s proceeds may not satisfy the total debt being foreclosed on. If not, the lender can legally bring personal action against the homeowner borrower for the deficiency.
- In some states, the borrower may have a right to redeem after a foreclosure by paying the entire sale price realized at the auction.
What Are Some Legal Issues That Arise After Foreclosure?
One of the most common legal issues associated with a foreclosure action is that of eviction. As previously mentioned, a homeowner does have some legal rights to remain in the home for a specified amount of time after foreclosure.
However, the homeowner will need to vacate the premises when legally required to do so. This has great potential to cause problems for the bank or for the new property owner, especially in terms of when the new owner moves into the home.
Another example of legal issues that may arise post-foreclosure are problems associated with when a property has remained vacant for a considerable period of time. This is referred to as zombie property, which will be further discussed below.
Issues associated with vacant foreclosure properties include:
- Unpaid property taxes on the properties;
- Property damage resulting from a lack of maintenance, such as foundation issues, landscaping issues, and deterioration;
- Unpaid utility bills;
- Safety or zoning violations.
Any of the above issues may need to be resolved through a legal proceeding in court. At the same time, disputes over the property’s title may need to be resolved through a quiet title proceeding.
What Is a Zombie Property?
As mentioned above, a zombie property is a property that has been abandoned or vacant for a long period of time. A zombie property can occur in specific situations in which a person’s home has been foreclosed upon, but the foreclosure is never really finalized. Because of this, the title never transfers from the homeowner to the bank.
In cases involving a zombie property, the homeowner may vacate the property and move away under the mistaken assumption that the bank will take over ownership of the property. However, the homeowner is still the legal property owner. As a result, the property falls into a state of disuse and disrepair due to the fact that neither the homeowner nor the bank is actively maintaining the property.
This is why it is imperative that if an individual has had a foreclosure filed against them, they are sure to follow up on it and ensure that the foreclosure process has actually been finished through to completion.
Furthermore, any person who has a foreclosure filed against them will want to ensure that the title has officially been transferred from their name to the bank’s name, or the new owner’s name if a sale has occurred.
Do I Need a Lawyer for Assistance With Post-Foreclosure Issues?
If you are being foreclosed upon and need assistance with the post-foreclosure process, it is imperative to consult with an experienced local foreclosure attorney. It is advised to consult with a local foreclosure lawyer, as so much of the process varies from state to state. A local attorney can help you understand your state’s specific foreclosure laws and provide you with the most relevant legal advice to help you move forward.
Additionally, a local attorney will also be able to represent you in court, as needed, should court intervention be necessary. Further, working with an attorney throughout the foreclosure process can help reduce the likelihood of further issues arising. This is because a lawyer can help guide you through the post-foreclosure process and reduce the chances of a zombie property.
