A foreclosure can be a devastating event for an individual or a family. It means losing their home and not being in a healthy financial situation.
A foreclosure occurs when a homeowner is not able to make their monthly mortgage payments and they are evicted from the home by the lender. The lender has the authority to do so due to the contract signed by the buyer of the home and the seller or lender.
The home serves as a collateral as stipulated in the mortgage contract. There are some lenders that provide a grace period in which a payment may be made before a foreclosure occurs.
This period, however, only lasts a couple of months before the property is foreclosed upon. In general, if a borrower is behind on their payments, it is harder to catch up on those payments because, in some cases, there are late fees that apply.
The two categories of foreclosures include judicial and nonjudicial foreclosure sales. Judicial sale foreclosures require intervention from a court in order to sell a mortgaged property.
This type of foreclosure may occur in every state, unlike a nonjudicial foreclosure. Nonjudicial foreclosures are also known as foreclosures by power of sale.
This type of foreclosure does not require the intervention of a court. Instead, the lender, which is often a bank, is permitted to sell the mortgaged property directly in order to recover any monies that are still owed.
Nonjudicial foreclosures are only available in some states. Regardless of what type of foreclosure process which is used, once the foreclosure is complete, the house or property belongs to the lender.
Depending on the laws in the state where the foreclosure occurs, there are certain exceptions which may permit a homeowner to reclaim their home.
What Steps are Taken During a Foreclosure?
The process of foreclosure may vary depending on the state where it occurs, as previously noted. Foreclosures typically follow a certain set of guidelines.
A foreclosure will typically last up to 6 months. The duration of the foreclosure will depend upon whether the foreclosure is by judicial sale or a foreclosure by power of sale.
A foreclosure by power of sale is usually quicker. In general, a lender is required to send a homeowner a notice of default, or lis pendens, prior to initiating foreclosure proceedings. This typically occurs following 3 months of missed payments.
The notice will typically state that the borrower is delinquent in the payments on their mortgage and, as such, the lender is able to repossess the home. The lender may also be able to place a foreclosure lien on the home or property.
If the homeowner continues to miss their payments or they do not establish a new payment plan with their lender, the lender may initiate a foreclosure proceeding. The lender is only required to show that a mortgage exists and that the borrower is delinquent on their payments.
Once the home or property is foreclosed on, the lender will typically sell it at an auction and attempt to recover their losses. If the home or property is sold for less than what the lender is owed, the borrower will be required to pay that difference, known as a deficiency judgment.
What are the Consequences of a Foreclosure?
The foreclosure process is complex and may be overwhelming. It is important for an individual to be aware of what their rights are as well as what the bank is permitted to do.
Every state has its own set of regulations governing the foreclosure process. Several issues to consider regarding what a bank cannot do before foreclosing on a home includes:
- Some states require banks to determine if the homeowner qualifies for either a loan modification or some other form of help before foreclosing on the home. If the bank decides to do both at the same time, it is illegal also known as dual tracking;
- If the homeowner applies for some help or loan modification, the bank cannot start the foreclosure process;
- The bank must obtain a court order and file for an eviction before foreclosing the home;
- The bank cannot padlock your home if you are still living in it; and
- If you reinstate your mortgage before the sheriff sale, the bank cannot continue your foreclosure process.
However, there are some things that the bank is permitted to do during the foreclosure process:
- Banks can padlock the home if it is empty;
- The bank can seek alternative judgments if they are unable to sell the home at auction for what they are owed on the mortgage; and
- The bank can either request a non-judicial foreclosure or judicial foreclosure.
What is the Foreclosure Auction Process?
If an individual is considering purchasing a foreclosed property, it is important to familiarize themselves with the foreclosure auction process. This process will vary from location to location, but this article can help an individual identify the type of information they should investigate before they participate in a foreclosed property auction.
Where are Foreclosure Auctions Held?
A Foreclosure auction may be held in a variety of places. The are most commonly held at:
- A designated public location;
- A courthouse; or
- The location of the foreclosed property.
How Do I Find Out When a Foreclosure Auction is Taking Place?
A foreclosure auction can be found in a variety of places, including:
- Local newspapers;
- Real estate websites, such as RealTrac.com;
- Through independent realtors; and
- Through the real estate commission or county trustee.
How Do I Attend a Foreclosure Auction?
In order for an individual to attend a real estate foreclosure auction, they must often register in advance. Depending upon the auction, an individual may be required to register between 24 hours to a few weeks in advance.
An individual should check the foreclosure auction listing to learn how to register.
How Much Will the Foreclosed Property Cost?
The bank that is auctioning the property will set the minimum bidding price. This amount is based on the principal currently owed on the property as well as any taxes, interest, or late fees that have accumulated on the property.
The property will then be sold to the highest bidder who bids above the minimum price. However, a property may sometimes come with hidden costs.
If there are any additional mortgages or liens on the property, the purchaser may become responsible for those debts if they purchase the property. It is important to check with the County Recorder’s office to determine whether a property is subject to additional debts.
How Should I Decide How Much to Bid?
Before submitting a bid on a real estate property, an individual should educate themselves on the current real estate market as well as determine the value of the property on which they are bidding. As previously noted, it is important to check the property’s public records to determine whether there are any additional mortgages, liens, encumbrances, or issues with the property’s condition that might affect the bidding decision.
What are the Bidding Procedures?
Bidding procedures will vary by state. Therefore, it is important for an individual to familiarize themselves with the local bidding procedures by attending a few foreclosure auctions.
Some foreclosure auctions may have live or silent bidding. In addition, some foreclosure auctions will require that a successful bidder has all of, or a percentage of, the cash, or cashier’s check, with them at the time of the bidding.
When Will I Have to Pay if I Win the Auction?
The winning bidder will typically be required to submit certified funds immediately, or within 24 hours, of winning the auction. Therefore, unless an individual has sufficient cash, they will need to secure funding from a bank ahead of time.
Should I Hire Professional Assistance?
If you have any issues, questions, or concerns related to foreclosure auctions, it may be helpful to consult with a foreclosure attorney who is experienced in foreclosure purchases. This investment in advice can help you find the right property and smoothly navigate the purchase process while avoiding any potential costly mistakes.