Foreclosure is the legal process of when a lender (e.g., a bank) takes possession of a home because the homeowner has failed to keep up with their mortgage payments. After a number of missed payments, the lender will be permitted to seize or take the home from the homeowner and sell it to recover the money owed on the mortgage.
There are two types of foreclosures, judicial and nonjudicial foreclosure sales. A foreclosure by judicial sale requires court intervention in order to sell the mortgaged property. Unlike nonjudicial foreclosures, it is available in every state.
In contrast, a nonjudicial foreclosure, also known as “foreclosure by power of sale,” does not require the intervention of a court. Instead, the lender (typically, a bank) is allowed to sell the mortgaged property directly to recover any money owed. Only certain states permit nonjudicial foreclosures.
Regardless of the type of foreclosure process used, once foreclosure is complete, the home belongs to the lender. Depending on the laws of the state where the foreclosure is occurring, there are certain exceptions that may apply to allow the homeowner to reclaim their home.
What Steps are Taken During a Foreclosure?
The foreclosure process may vary depending on the state, but typically follows a routine set of guidelines. A foreclosure usually lasts for up to six months and will normally depend on whether the foreclosure is a foreclosure by judicial sale or a foreclosure by power of sale. Foreclosures by power of sale are usually quicker.
In general, a lender must send the homeowner a notice of default (or lis pendens) prior to initiating any foreclosure proceedings. This typically happens after three months of missed payments.
The notice will usually state that the homeowner has been delinquent in their payments on the mortgage and as such, will be able to repossess the home. The lender can also place a foreclosure lien on the home.
If the homeowner continues to not make payments or does not establish a new payment plan with the lender, the lender will then initiate a foreclosure proceeding. All the lender has to prove during these proceedings is the existence of a mortgage and that the homeowner has been delinquent on their payments.
Once the home is foreclosed on, the lender will typically sell it at auction to try to recover their losses. If the home is sold for less than what the lender is owed, the homeowner will be required to pay the difference. This is known as a “deficiency judgment.”
What Protections Does the Homeowner Have Against a Foreclosure Proceeding?
While a lender has a legal right to seek repayment of a loan through a foreclosure proceeding, a homeowner still has some protections that they may be able to enforce. These protections include:
- Equity of Redemption: This is a right that the homeowner may exercise that gives them the chance to fully pay off the entire mortgage loan any time prior to the final foreclosure sale. It is available in every state;
- Statutory Right of Redemption: Similar to the equity of redemption, this right also allows the homeowner a limited period of time to pay off their mortgage loan, but it applies after the final foreclosure sale occurs. It is not available in every state;
- Homeowner’s Right to Bid at the Foreclosure Sale: This gives the homeowner one final chance to buy back the home from the lender;
- Judicial Supervision of Price: If the lender bids low at a foreclosure sale and then afterwards sells it at a very high price, the homeowner may be entitled to a share of the lender’s excess profits; and
- Public Notice of Foreclosure Sale: The public must be notified that the home is being auctioned off. This increases the potential number of bidders, which in turn, increases the price that the home could possibly sell for, making a large deficiency judgment less likely.
If you are involved in a foreclosure proceeding, it may be in your best interests to hire a real estate attorney. Not only will they be able to better apprise you of your protections, but they also will be able to determine whether or not you have other defenses available, such as if the lender did not follow proper state procedures or if the lender engaged in unfair lending practices.
Do I Need to Hire a Lawyer for Help with a Foreclosure Proceeding?
Foreclosure can often be an overwhelming and stressful process for many people. If you are facing foreclosure on your home, you should contact a local real estate lawyer immediately. The earlier in the process that you retain legal representation for advice, the more likely your chances are of avoiding a complete foreclosure sale.
An experienced real estate lawyer in your area can help you evaluate what options you have, provide further legal counsel about your matter, and can ensure that your rights are protected throughout the entire foreclosure proceeding.
Additionally, a lawyer can also assess whether or not you will be able to reclaim your home and can also guide you through that process as well.