Foreclosure is the legal process in which the bank or the lender tries to recover the amount an owner still owes on their property. Each state government controls its own foreclosure process in each state. Foreclosure is a nightmare for any homeowner. Foreclosure can have a great emotional impact on any family that goes through one.
*Typically within two months of the first missed payment, the mortgagee’s credit report will reflect a missed payment. Foreclosure lasts for 7 years in credit reports.
What does foreclosure mean?
Foreclosure is the process in which the lender takes ownership back from the borrower in order to recover the borrowed amount. Once the lender has possession of the property they will resell the property to recover the remaining amount. This is a bad day for homeowners
Types of foreclosure
The two types of foreclosures are known as Judicial Foreclosure and Non-Judicial Foreclosure. Continue reading for a detailed explanation of the two.
Judicial foreclosure is when your mortgage company files a lawsuit against you. In order to proceed with the foreclosure process a judge will need to sign the sale order. The lawsuit will be in regard to the payments you have missed. You will have an opportunity to make a defense and respond. All states could follow the judicial foreclosure process, but some states like Ohio and New York will exclusively follow them.
Opening pleading: This is sometimes referred to as a “petition” or “complaint”. The court will be asked by the lender for the right to sell the property to recover the debts and possibly for a deficiency judgment. Even if the property does not sell for the amount the borrower owes, they will still be held liable for the remaining balance.
Responsive Pleading: the borrower must respond to the lawsuit when the lender has the court case filed. The borrower will have to file an answer to the complaint to dismiss the case. If the borrower does not file the responsive case, then the lender will ask the court for a default judgment.
In order to complete the non-judicial foreclosure process, the lender must follow state law. California, Arizona, and Nevada are all states that follow non-judicial foreclosure along with many other states. The steps the lender will follow are sending a notice of default letter, recording the notice of default with the local government, and sending the notice of sale.
Following non-judicial foreclosure, you can expect to face a lack of judgment lawsuit, per your state law. Since there won’t be a judicial process, the state may allow the lender to send the notice of sale that could be included with the notice of default. Publishing of the foreclosure may be published in the newspaper. Also, expect to have the notice posted on the front door of the home.
You may decide to fight back against the non-judicial foreclosure by filing a lawsuit, then it will proceed as a judicial lawsuit.
What is the foreclosure process?
The mortgage forbearance ended in September 2022. Each state works differently according to their own state laws regarding foreclosure. In this next block, we will discuss the steps involved in the foreclosure process.
Step 1- Missed Payment: The foreclosure process starts when you first miss a payment. Typically the lender will give you a grace period and allow you time to get back on track. You may suffer a late penalty but will likely not reflect on your credit report.
Step 2-Payment Default: If you do not make your payment within the grace period the lender allows, you will be considered in default of payment.
Step 3-Notice of Default: At this point, the lender will begin with the process we previously discussed whether they will be moving forward with the judicial or non-judicial foreclosure process.
Step 4- Pre-Foreclosure: This refers to the time between the notice of default and the property’s sale. This will be your last opportunity to pay the lender before the foreclosure.
Step-5- Notice of sale: If you do not pay the past due balance or negotiate payments with the lender, they will set the date for the property to be sold.
Step 6- Eviction: At this point, you will be evicted from the home and must vacate the premises.
Stopping Foreclosure near you
Remember that the foreclosure process is different from state to state so take the time to check the local laws that relate to you.
What to do with the profits when the home sells
If the home sells for more than the owed amount, the old property owner will get the difference. Meaning the bank will not make extra money just what is owed on the property.
What happens if it sells for less
Depending on what state you’re in, the lender will file a lawsuit called a deficiency judgment. The borrower would potentially be liable for any deficiency. For example, if the owner owed $200,000 and the home sold for $180,000 the owner would be responsible for the $20,000.
After a foreclosure, your credit report will be seriously impacted. The foreclosure could be on your credit report for 7 years.
It is important to remember that foreclosures are not to be taken lightly. Foreclosures can be avoided by getting in front of them and communicating with your lender. If you find yourself in a possible foreclosure, reach out to local specialists to try to assist. A good option may be selling your house before it gets to foreclosure. Remember many people have been through foreclosure and many more will likely go through them in the future and you can easily avoid it or recover from it.