Process of Foreclosing on a Mortgage

When the borrower signs a mortgage, the borrower is agreeing to make regular monthly mortgage payments to their lender. If they fall behind and default, they also are giving the lender the right to foreclose upon the property, unless the borrower and the lender come to some other arrangement or the borrower brings all fees and payments current and the loan is reinstated.  Other options to stop the foreclosure process are a mortgage modification, a deed in lieu of foreclosure, a short sale, regular sale, refinance or a bankruptcy.  If none of these occur, then the lender will start foreclosure proceedings against the property through either judicial or non-judicial process depending on the laws of the governing state and the terms of the mortgage.

Pre-Foreclosure Stage

The lender records a Notice of Default (for states that have non-judicial foreclosures) or a Lis Pendens (for states that have judicial foreclosures) which notifies the borrower, all interested parties and the public that the foreclosure process has begun on the property.  The borrower has a statutory time limit in which to respond, redeem or work out a payment plan such as a mortgage modification with their lender otherwise the home will go to foreclosure sale.  It also gives the public constructive notice that there may be a pre-foreclosure property available down the road for purchase.

Foreclosure Auction or Sheriff’s Sale

The next stage of the foreclosure process involves the sale of the property. If the foreclosure process is a judicial proceeding through the court, the court will need to approve the sale.  If the sale is a private trustee sale in a non-judicial foreclosure then the sale does not need court approval. Generally the sale is published in a newspaper of general circulation letting the borrower and the public know that the property is going to be auctioned for sale.

For bidding at a foreclosure sale, bidders will need at least a 10% deposit in the form of a cashier’s check. The successful bidder will have to pay the balance of the purchase price at the end of the auction in cash. Some states allow the bidder to make payment arrangements.  If the property sells at the auction, then the proceeds will be paid to the lender.

Redemption Periods

The foreclosure laws vary from state to state. Statutory redemption periods are available to the borrower usually prior to the foreclosure sale. This means that the borrower has a certain amount of time prior to the sale to redeem their property by paying all arrearages, fees and costs.

Deficiency Judgments

Some states allow the lender to file a deficiency judgment against the borrower after the foreclosure for the deficiency amount owed on the loan. However, in practice most lenders do not bother filing deficiency judgments against borrowers because it cost them more time and money than they can collect. They know that most borrower do not have any money or assets to go after so there is no point pursuing the matter. Also sometimes it is hard to find the borrower after the property has been foreclosed upon.

REO Bank Owned Property

If the property does not sell at the foreclosure auction or sheriff’s sale, it becomes a bank owned REO property, which means the lender buys the property back, and will put it on the market with a Realtor for sale.

Timeline of Foreclosure

The timeline for a foreclosure process should normally be about five months.  However, because there are so many borrowers who have defaulted, the lenders have not been able to process all the foreclosure notices and filings. Also lenders are trying to avoid filing foreclosure actions and are attempting to resolve the matter with the borrower in another manner.  Foreclosures are expensive for lenders, and they would prefer not to go through the process. Also, lenders have too many foreclosure properties in their inventory right now and are trying to sell them off so the last thing they need is another foreclosure property to sell.

• If you may be facing foreclosure or already in the process, Consult Your Case for Free with a local certified Foreclosure Attorney to see your best options you have available to avoid Foreclosure.