The term, “foreclosure” refers to the process in which a lender takes possession of a home due to the fact that the homeowner/borrower has defaulted on their mortgage payments. Once the foreclosure process is complete, the lender generally sells the property at a public auction and uses the proceeds to recoup their losses.
The foreclosure process typically begins after three months of nonpayment, and after the borrower has been notified of default. This notice will usually state that the borrower has become delinquent in their payments and that the lender has the legal right to repossess the home.
During foreclosure proceedings, the lender simply must prove that a mortgage exists in addition to proving that the borrower has failed to make their payments. Once the home has been foreclosed upon, the lender will likely sell it at auction conducted in a reasonable manner. Then if the sale of the property does not bring in as much as the lender is owed, the borrower may be required to make up the difference. This is referred to as a deficiency judgment.
Most foreclosures result in the lender losing money, or breaking even. This means that lenders will not receive interest that they would have received had the borrower continued to make payments. As such, although lenders do need to make money back on the loan using any legal means possible, foreclosure will likely be their last resort. Lenders may allow payments in installments on top of the borrower’s regularly scheduled payments, or work with the borrower to come to a revised payment plan.
What Is a Foreclosure Lien? Can Foreclosure Liens Be Discharged?
A foreclosure lien is sometimes referred to as a mortgage lien, a property lien, or a real estate lien. Once again a foreclosure is a type of legal proceeding initiated by a lender against a borrower, usually a homeowner, in the event that the borrower fails to keep up with their mortgage payments. A foreclosure lien is the judgment lien that allows the lender to legally obtain possession of the borrower’s property. Foreclosure liens are commonly connected with various types of home foreclosure proceedings.
Sometimes, the court is the one to initiate the process, as opposed to the lender. The lien in this situation is referred to as a judicial lien. Once placed on a debtor’s property, the creditor is allowed to obtain the title to the property. A judicial lien is usually obtained in connection with the final judgment issued in a lawsuit between the debtor and creditor.
There are some cases in which a foreclosure lien may be discharged. These cases could include:
- The borrower makes all required payments and gets caught back up, effectively removing the lien;
- The lien expires due to being subject to an automatic discharge after a specified amount of time, dependent on state limits;
- The mortgage debt is forgiven or cancelled by the lending company, which is generally reserved for limited circumstances such as those involving extreme hardships; or
- A judge orders that the lien being discharged. An example of this would be if a bankruptcy judge orders that the bankrupt landowner’s lien be discharged based on the type of bankruptcy they have filed for.
Discharging a property lien when possible is absolutely necessary in order to later on sell the property. The property’s title must be clear, which means that the title holder must both pay off the remainder of their mortgage before selling the property, as well as satisfy any liens that may have been placed on the property. This will generally be done during the time of sale with the proceeds from the sale being used to pay off the debt. Once a lien has been discharged, it will no longer appear on the title report, or county records.
Are There Any Ways to Avoid Foreclosure?
Because foreclosure often happens due to lack of payment, the absolute best way to avoid foreclosure is to stay on top of mortgage payments. If a borrower cannot make their payments, they should attempt to work with the lender to create a revised payment plan. As previously mentioned, lenders do not necessarily want to foreclose on properties and may be willing to negotiate a better payment plan in order to continue receiving interest on top of mortgage payments.
Borrowers should also be fully aware of their rights and duties as prescribed by the mortgage contract they agreed to. Most lien situations arise from poor planning or a lack of foresight. Some common examples of foreclosure avoidance include:
- Short refinance, where part of the borrower’s debt is eliminated and the remaining loan is refinanced;
- Short sale, in which the borrower sells the property for an amount lower than what is still owed. The proceeds of the sale then go to the lender, and the rest of the debt is forgiven;
- Loan modification, with the lender being willing to modify the terms of the loan and be paid something, rather than be paid nothing; and
- Forbearance, which could temporarily stall the foreclosure process and gives the borrower more time to eventually pay the amount that they owe.
Should I Hire an Attorney to Assist With a Foreclosure Lien?
If you are facing a foreclosure lien, you absolutely should consult with a skilled and knowledgeable real estate attorney in your area. An experienced real estate attorney can help you understand your rights and duties, as well as provide you with legal guidance as to how you should proceed. Additionally, they can represent you in court as needed.