Foreclosure is a forced sale of an item of real property, usually a house. It occurs in the even that a property owner is unable to make payments on the loan or mortgage that they used to pay for the home. In such cases the borrower is said to be in default on the loan. Once in default, the lending institution can take possession of the property and sell it at an auction or foreclosure proceeding in order to recover the payments on the loan.
Foreclosure is not an automatic process- there are many steps to be taken before a home is ultimately repossessed by the lending institution. During these steps, there are several protections available to the home owner.
What protections are available if I am faced with foreclosure?
If a home loan has gone into default status due to missed payments, the bank will likely pursue a foreclosure proceeding in order to recover their lost payments. Although this can present challenges for the homeowner, there are still a number of protections available which can prevent or delay foreclosure. Some of these protections include:
Judicial foreclosure proceedings: These involve a court supervised sale of the home. This ensures that the home is sold at a fair price and that illegal methods as fraud or coercion are not employed. Sometimes the court allows the home owner to have a share of the sale price if it is excessively high
Equity of redemption: Before foreclosure, the property owner can pay off the balance of the debt.
Right of redemption: Allows the owner of the home to pay off debts after the foreclosure proceedings have already been completed. Some lenders require the borrower to pay the entire loan amount
Right to bid: Sometimes the bank will allow the borrower to place a bid at the auction where the house is being sold. In effect this allows the home owner to buy their property back from the lender
Public notice: The lender must make a public notification that the house is being foreclosed. This increases the chances that the house will be sold at a reasonable price.
Finally, even before foreclosure proceedings are initiated, the property owner must be notified that they are in default on their loan or mortgage. This allows the borrower a reasonable amount of time to catch up and make back payments on the loan.
How can a lawsuit or a bankruptcy proceeding help?
Filing a lawsuit or filing for bankruptcy will not necessarily stop the foreclosure process. However, they do tend to delay the process, giving the borrower some time to gather resources for loan payments.
In order to file a lawsuit against a lender, the borrower needs to have a legitimate claim such as mortgage fraud or duress. In other words, you cannot file a lawsuit simply for the purpose of delaying foreclosure proceedings.
Filing for bankruptcy can sometimes delay the ultimate foreclosure ruling. Once a person files for bankruptcy, the bankruptcy judge will usually order an automatic stay on all debts, including outstanding mortgage payments. This means that lenders may not collect on loan payments, make evictions, or complete the foreclosure process until the bankruptcy hearing is completed.
In very limited instances, filing for bankruptcy can result in a complete discharge of all debts, including defaulted loans. This is extremely rare and only available under certain circumstances. Finally, please note that filing for bankruptcy can have several unwanted consequences in other areas of life. Always consult with a lawyer and make a thorough analysis before deciding to file for bankruptcy.
Should I hire a lawyer when dealing with foreclosure?
Foreclosure can present many challenges for home and property owners. If you are being faced with foreclosure, you should contact a lawyer who can provide you with valuable legal advice. Foreclosure rules vary from state to state, and an experienced attorney will be able to prescribe the proper course of action under state and federal real estate laws. Be sure to keep all relevant documents, such as deeds, titles, and records of payments.