A foreclosure is a legal process where a lender, often a bank, takes possession of a home or property because the homeowner has failed to keep up with their mortgage payments. After a certain number of missed payments, a lender is permitted to seize, or take, the home or property from the homeowner and sell it in order to recover the amount owed on the mortgage.
The type categories of foreclosures are judicial and nonjudicial foreclosure sales. A judicial sale foreclosure requires intervention from a court in order to sell a mortgaged property. This type of foreclosure is available in every state, unlike a nonjudicial foreclosure.
A nonjudicial foreclosure is also known as a foreclosure by power of sale. It does not require the intervention of a court. Instead, a lender, often a bank, is permitted to sell the mortgaged property directly in order to recover any money that is still owed. Nonjudicial foreclosures are only available in certain states.
Regardless of the type of foreclosure process which is used, once a foreclosure is complete, the home or property belongs to the lender. Depending on the laws in the state in which the foreclosure is occurring, there are certain exceptions which may permit a homeowner to reclaim their home.
What Steps are Taken During a Foreclosure?
The foreclosure process may vary depending on the state in which it is occurring, as noted above. However, foreclosures typically follow a routine set of guidelines. Foreclosures typically last up to six months.
The duration will depend upon whether it is a foreclosure by judicial sale or a foreclosure by power of sale. A foreclosure by power of sale is typically quicker.
Generally, a lender is required to send a homeowner a notice of default, called a lis pendens, prior to initiating foreclosure proceedings. This typically occurs following three months of missed payments.
The notice will typically state that the borrower has been delinquent in the payments on the mortgage and, as such, the lender will be able to repossess the home. A lender may also be able to place a foreclosure lien on the home or property.
If a homeowner continues to miss payments or does not establish a new payment plan with their lender, the lender may then initiate a foreclosure proceeding. The lender must only show that a mortgage exists and the borrower is delinquent on their payments.
Once a home or property is foreclosed on, a lender will typically sell it at an auction in an 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 the difference, known as a deficiency judgment.
What Protections does the Homeowner have Against a Foreclosure Proceeding?
Although the lender has a legal right to seek repayment of the loan by using a foreclosure proceeding, the homeowner still has some protections that they may be able to enforce. These include:
- Equity of redemption;
- Statutory right of redemption;
- Homeowner’s right to bid at the foreclosure sale; and
- Judicial supervision of price; and
- Public notice of foreclosure sale.
The equity of redemption is a right which a homeowner may exercise which gives the borrower the chance to fully pay off their entire mortgage loan at any time prior to the final foreclosure sale. This right is available in every state.
The statutory right of redemption is similar to the equity of redemption. It allows a homeowner a limited period of time in which to pay off their mortgage loan. However, it applies after the final foreclosure sale is complete and is not available in every state.
The homeowner’s right to bid at the foreclosure sale is an additional right for the borrower. It provides the homeowner a final chance to buy back the home from the lender.
Judicial supervision of price helps protect the borrower from being taken advantage of during the sale. If a lender bids low at the foreclosure sale and then sells the home or property at a very high price, the homeowner may be entitled to a share of the excess profits the lender earns.
The public notice of foreclosure sale requires that the public be notified that the home or property is being auctioned. This notice increases the potential number of bidders, which also increases the price that the home or property may possibly sell for. This makes a large deficiency judgment less likely.
If an individual is involved in a foreclosure proceeding, it is in their best interests to hire a real estate attorney. An attorney is best equipped to advise an individual regarding their protections and will also be able to determine what defenses are available.
How has COVID-19 Affected the Foreclosure Process?
The coronavirus pandemic has affected every aspect of life, including the foreclosure process. Millions of individuals have lost income and are, therefore, facing housing instability.
Initially, the federal government responded to the potential housing crisis by implementing protections for mortgage loan borrowers and tenants pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Homeowners are protected to a certain extent if their mortgage is federally guaranteed. This type of mortgage accounts for over two-thirds of residential mortgages across the nation.
A foreclosure moratorium for federally guaranteed mortgages was in place but ended on June 30, 2021. An eviction moratorium is in place through September 30, 2021 for foreclosed loans from:
- Fannie Mae;
- Freddie Mac;
- The FHA;
- The VA; and
- The USDA.
Although many federal protections have ended or are ending soon, state governments have also implemented their own eviction and utility shut off moratorium laws. The Consumer Financial Protection Bureau (CFPB) has made it mandatory for a loan servicer to enhance their efforts to assist a homeowner who has been affected by the pandemic. This rule helps to ensure a borrower obtains a meaningful chance to pursue loss mitigation options in order to avoid a foreclosure and permits the servicer to offer quicker assistance to borrowers.
It is important to note that these protections do not relieve a homeowner or a tenant of their obligation to pay their mortgage or rent. It suspends the ability of a lender or landlord to file a new foreclosure or eviction case, or to enforce orders to vacate a property. This same principle applies to protections for utility shutoffs.
It is also important to note that some lenders are providing their customers with protections if they are suffering during the COVID-19 pandemic and are unable to make payments. These will vary by lender. An individual must contact their lender to determine what protections may be available and the steps for obtaining those protections.
Do I Need to Hire a Lawyer for Help with a Foreclosure Proceeding?
Yes, it is essential to have the assistance of a foreclosure lawyer if you are involved in a foreclosure proceeding. A foreclosure is an overwhelming and stressful situation to face.
If you are facing a foreclosure, it is important to consult with a local attorney as soon as possible. The earlier in the foreclosure process that you can retain an attorney, the more likely your chances of avoiding a complete foreclosure sale.
Your attorney can review your situation, advise you of your options, and ensure your rights are protected for the duration of the foreclosure proceedings. Your attorney can also assess whether or not you may be able to reclaim your home as well as guiding you through that process.