Foreclosure is a legal process which occurs when a lender, often a bank, takes possession of a home because a homeowner failed to keep up with the mortgage payments. After a certain number of missed payments, the lender is permitted to seize or take the home from the homeowner and sell it in order to recover the money that is owed on the mortgage.
There are two types of foreclosures: nonjudicial and judicial foreclosure sales. A nonjudicial foreclosure is not available in every state. A foreclosure by judicial sale requires intervention from a court in order to sell the mortgaged property.
In contrast, nonjudicial foreclosure, also called a foreclosure by power of sale, does not require intervention from a court. Instead, the lender, which is typically a bank, is permitted to sell the mortgaged property directly to recover money which is owed. Nonjudicial foreclosures are only permitted in certain states.
Regardless of the type of foreclosure process which is used, once the foreclosure process is complete, the home belongs to the lender. Depending on the laws of the state in which the foreclosure is occurring, there are exceptions which may apply to permit the homeowner to reclaim their home.
What Steps are Taken During the Foreclosure Process?
Foreclosure processes may vary depending on the state. However, they typically follow a routine set of guidelines.
The foreclosure process typically lasts for up to six months. The time period may vary depending on whether the foreclosure is a 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, or lis pendens, prior to initiating foreclosure proceedings. This typically occurs after three months of missed payments.
The notice of default will typically state that the homeowner has been delinquent in their payments on the mortgage and, due to that, the lender will be able to repossess the home. The lender may also be able to place a foreclosure lien on the home.
If the homeowner continues to fail to make payments or does not establish a new payment plan with the lender, the lender will initiate foreclosure proceedings. The lender is required to show during these proceedings that a mortgage exists and that the homeowner is delinquent in their payments.
Once a home is foreclosed upon, a lender will typically sell it at auction and attempt to recover their losses. If the home sells for less than what the lender is owed, a homeowner will be required to pay the difference. This is called a deficiency judgment.
What is a Necessary Party in a Foreclosure?
In a foreclosure, the mortgage holder is required to join, or name, all necessary parties to the foreclosure proceedings. A necessary party includes any party that acquired a lien, lease, or easement after the mortgage was executed. This applies to the mortgage which the foreclosure proceedings apply to.
To better understand this issue, it is helpful to be aware that a foreclosure is an attempt to sell a home or property in the condition it was prior to the mortgage being executed. This means that if a party obtained an interest in the property after a mortgage was taken out on it, it needs to be addressed prior to the sale of the property.
Necessary parties are also sometimes called indispensable parties. They can be joined or added to a foreclosure case without their consent. A court will then attempt to resolve the interests of the necessary parties prior to ordering a judicial sale of the property.
What is a Proper Party to a Foreclosure Proceeding?
In contrast to a necessary party, a proper party is any party that can be helpful if they are joined to the foreclosure case, but it is not necessary for the party to be joined in order for the proceedings to be completed. A proper party is generally those individuals or companies who acquired an interest in the property before the mortgage in question was executed.
Proper parties generally would not be affected by the foreclosure but are joined nonetheless in order to assist with providing clarifications regarding the mortgage that is being foreclosed upon. These parties are typically joined voluntarily.
In most cases, proper parties cannot be joined to a foreclosure case without their consent. The rules that define necessary and proper parties to foreclosure proceedings vary from state to state.
What is Omission of a Party to a Foreclosure?
Omission of a party to a foreclosure occurs when a mortgage holder fails to join a necessary party to a lawsuit. They may have negative consequences for all parties involved, including:
- Delays in the overall proceedings;
- The court possibly needing to re-analyze the case;
- The necessary party or parties not named may “come out of the woodwork” and challenge the case, often causing confusion for the proceedings; and
- Extra court costs due to the foreclosure process taking longer than expected.
As noted above, proper parties are typically not required in order for a foreclosure proceeding to move forward. Therefore, a mortgage holder should do their proper research to determine which parties are necessary and which parties are only proper.
In addition, the debtor and the debtor’s attorney should also conduct similar research. This will allow them to have an understanding of exactly which parties may have an interest in the property.
What Protections Does a Homeowner Have Against a Foreclosure Proceeding?
While a lender does have a legal right to seek repayment of a loan through foreclosure proceedings, a homeowner may have some available protections from the foreclosure. These protections may include:
- Equity of redemption. This is a right that the homeowner may exercise which gives them the chance to fully pay off the entire mortgage loan any time prior to the final foreclosure sale. This right is available in every state;
- Statutory right of redemption. This is similar to the equity of redemption. This right gives a homeowner a limited period of time to pay off their mortgage loan. However, it applies after the final foreclosure sale occurs. This 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 a 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 a home or property is being auctioned. This increases the number of potential bidders, which, in turn, will likely increase the price that the home may sell for, which makes a large deficiency judgment less likely.
Do I Need a Lawyer?
It is essential to have the assistance of a foreclosure attorney for any issues regarding foreclosure omissions. In many cases, it may be difficult to determine which parties are involved in a foreclosure proceeding. Your lawyer can review your mortgage and case, advise you regarding research in terms of the history of the mortgage, as well as represent you in court if you are required to appear.