The Foreclosure Process

The foreclosure process begins whens homeowners are not able to make their mortgage obligations. This could be due to job loss, sickness, death, divorce and other hardships. Once the homeowner is behind on payments usually more than 90 days, the lender will begin the foreclosure process.

Every state will either use a mortgage or trust deed as their legal means to secure a property. Depending on the state that you live in, the mortgage foreclosure process is different from the trust deed foreclosure process.

Foreclosure Process for Mortgage States

foreclosure processA title search is ordered which is simply a report from the title company giving the attorney information about the borrower and the property. This report will include information about junior mortgage holders, liens and judgment holders, government tax lien holders and others who have an interest in the property.

A Lis Pendens is now filed against the property. Lis Pendens means "legal action pending" which is the legal term used to notify the public that legal court action is pending. Usually the lenders attorney is the one who files the lis pendens. Even though the lis pendens has been filed, the homeowner/borrower can still sell the property, but the sale would be subject to the court action.

A notice is then posted on the property and in at least three public places. The notice is usually filed in the court where the trial is to be held. The mortgagor or owner is notified and given the opportunity to respond to the complaint. He or she usually has 15-20 days or so to respond back to the court challenging them on the foreclosure action. This foreclosure timeline will vary in each state.

If no response is made during this time period, the lenders attorney will submit a report stating the amounts due, all the legal costs, and any additional costs involved in the process. The report is given to a referee who reviews the report and then gives it to the judge. The judge issues a default judgment of foreclosure which means the process will be expedited or moves more quickly. A court date is set, court is held and a judgment (the decision of the court) is rendered. A referee or appointed official is then directed to sell the property at a Sheriff's Sale.

On the other hand, if the borrower responds to the notice, the court now has 40 days or so, depending on the state, to respond back to the borrower. Keep in mind that each correspondence must be legitimate and deal with some specific part of the complaint. This slows the foreclosure process tremendously because it must go through the court system and a judgment must be issued. It may go as long as a year if needs be or even longer. This is one of the disadvantages of the judicial system, because it may take a long time to go through the foreclosure process.

The mortgagor also has the right to bring the loan current and avoid the sale before it is held. This is called the borrower's right of redemption. For this to occur, the mortgagor must pay off the whole current mortgage balance, plus all fees and penalties incurred by the foreclosure. If the mortgagor does not bring the obligation current, then the property is auctioned at the sheriff's sale.

Statutory period of Redemption or "Right of Redemption" - This is the right to redeem or retain possession of the property. The statutory period of redemption varies from state to state, but the average is 3-6 months. During this time, the mortgagor has the option of obtaining the right of possession again or in other words they can get their property back. The mortgagor must redeem (rather the reinstate) the property to regain ownership. Redeem means to completely pay off all liens, fees, and debts against the property.

After the statutory period of redemption has passed, the buyer receives a Sheriff's Deed and the mortgagor must voluntarily give up the property.

One more important fact: If the lender fails to get the full amount owed through a subsequent sheriff's sale, then the bank can obtain a deficiency judgment against the defaulting borrower. This judgment lien is enforceable and collectible in the same manner as any judgment at law.

Here is a quick foreclosure timeline:

  • Borrower defaults
  • Lis Pendens filed
  • A date is set for the sale to take place
  • A three week advertising period is required during which the property must be advertised in the legal section of a local paper of general circulation at least once a week
  • The three weeks is followed by a 10-day moratorium
  • The sale must take place within 10 days following the moratorium
  • The sale is held, usually at the county courthouse. A buyer bids and buys the property
  • The highest bidder pays a cash deposit on the spot and the rest due within the specified time given
  • The buyer receives a "Certificate of Sale," which is not a deed to the property
  • Redemption period starts (if there is one)
  • After redemption period, deed is conveyed

Foreclosure Process for Trust Deed States

One of the differences in a trust deed state is that a trustee is used. In the event the homeowner is behind on his/her payments, this third party individual or trustee acting in a sense like a judge, can bypass the court system because he holds the title to the property. When the loan payments are behind, the beneficiary or bank notifies the trustee to proceed with foreclosure.

The trustee, as instructed by the beneficiary, files a "Notice of Default" which gives public or constructive notice of the foreclosure action. The notice of default is recorded at the county courthouse.

Within a few days of the recording, the trustee will also send a copy to the homeowner. Now the clock is ticking, and the homeowner has 90 days or so to cure the loan or else a notice of sale is posted on the front door of the property. During this 90 day period, the homeowner, by law, has the right to reinstate or cure the loan by making up all mortgage payments, plus all late charges, foreclosure costs, and legal fees. This is basically the redemption period that gives the homeowner a chance to keep their home.

If the homeowner fails to cure the loan within the 90 day redemption period, then:

Foreclosure Timeline for Sheriffs sale

  • A date is set for the sale to take place
  • A three week advertising period is required during which the property must be advertised in the legal section of a local paper of general circulation at least once a week
  • The three weeks is followed by a 10-day moratorium which is like a suspension
  • The sale must take place within 10 days following the moratorium
  • A buyer bids on the property and the highest bidder pays cash. The buyer receives a Trustee's Deed, sometimes referred to as a Foreclosure Deed. Often times the only bidder is the lender. The beneficiary cannot obtain a deficiency judgment unless the value of the property is less than the amount of the balance owed on the loan

As you can see, the foreclosure process is different for mortgage states and trust deed states. The foreclosure timeline will also vary from state to state. Every bank and foreclosure case is different too. Banks will start the foreclosure process whenever they feel like it. It could be 90 days, it could be 1 year. So don't be surprised if the foreclosure process doesn't start after 90 days.

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