What happens when a homeowner defaults on a mortgage?
When a homeowner fails to make payments or default on a mortgage, the lender records a Notice of Default (NOD) at the local courthouse, and a notice of sale by public auction is published in the local newspaper. The period of time between filing the NOD and the date of the auction is known as the pre-foreclosure period.
What constitutes a breach or a default?
A breach happens when the borrower fails to make the payments of principal and interest. If the balance of the note is due, the breach would be the failure to make the principal payment due plus interest, by the maturity date. Most deeds of trust have provisions for when a default can be declared. For most deeds of trust, a breach can be declared when a senior lien, insurance, taxes and assessments have not been paid, or if the property is transferred without the lenders approval.
What is a foreclosure?
A foreclosure is the process in which a secured creditor, in this case the bank, tries to collect money owed to them as indicated by a promissory note and selling the collateral. Usually homeowners borrow money from a bank to purchase a home. In return for lending you money, the borrower makes a promise that if they can not pa back the loan, then the bank could take the house.
How long does this process usually take?
From the time you miss your first payment to the final foreclosure sale it’s not uncommon for six months or more to pass. This process also depends on which state you live in, and what the procedures your state abides by. In some states this could take more time and in others considerably less time. It will also depend on your mortgage holder and how aggressively they pursue your case.
Can the bank just come and kick me out of my house?
No. Only an order of the court can force you to leave your home. Ultimately you may be evicted but there are procedures within the court system that the mortgage holder must follow first for the foreclosure and then another set for the eviction. Remember, this proceeding may also vary per state.
When in the foreclosure process do I have to move out of my house?
The short answer is you do not have to move out f your house during the foreclosure process. The foreclosure process even when followed through to completion only transfers ownership of the house from you to the highest bidder in an auction. This transfer of ownership becomes complete at a closing following the foreclosure auction. After the auction you automatically become a tenant in the house you formally owned. At this point the new owner must follow the legal procedures in your state for eviction. You also do not move out unless a Sheriff’s order has been issued to you.
What is the eviction process?
Again this will vary widely from state to state and you should be consulting with an attorney that has experience in this field.
How long does the eviction process take?
In some states, the judge can order eviction immediately at the end of the trial. But the court customarily gives the tenant time to move out, usually one to four weeks. The bank can also hire the Sheriff or Marshall to carry out an order of eviction, and in that case, it may be effective immediately. Please remember this varies by state.
Once the foreclosure process starts is there anything I can do to stop it?
Yes. If working from your first late payment there are at least 10 or 20 different ways to resolve the situation. The longer you wait, however, the more some of these options will become unavailable.
How will I know which is the best option for me?
This is a tremendously complicated question. The answer will depend upon your assets, liabilities, income, expenses and the underlying reason why the house is in foreclosure. The best solution will also depend upon the type of mortgage you have and where in the foreclosure process you are when you make the decision to save the house. Add link to options.
Is there anyone familiar with all of these options that can help me take the best course?
Click here for the answer
May I bid at my own auction?
Yes if you have the required deposit. Remember this is a non-refundable deposit and if you are the successful bidder you must be able to comply with the terms of the auction.
What does this mean when debts merge?
Let's say for example that the first mortgage is foreclosing and forecloses out the second and third mortgage. The second and third mortgage holder no longer has any right or title to your home. You may still owe this money but they have no right to foreclose on the home nor do they have any security interest in the home in any way. If someone else buys your home at the auction the bank, the second and third mortgage holders have lost all their right to the property but on the other hand if you buy the property back the debt may "merge" back to the property with you and reattach, as if the auction never foreclosed them out.
What happens when a property is auctioned subject to a first mortgage?
This happens when the mortgage is being foreclosed by the second mortgage holder. They can only foreclose from their position. Let us say for example there are outstanding taxes of $10,000.00 and a first mortgage of $90,000.00 on the property with the second mortgage foreclosing. At the auction the second mortgage would foreclose from their position subject to the first mortgage and the taxes. You find at this type of auction at a bid of $1.00 is the same as bidding $100,000.00. To own the house out right one would have to satisfy the first mortgage and the taxes.
What happens if no one at the auction bids an amount high enough to cover my debt?
If the mortgage were $150,000.00 and the high bid at the auction was $100,000.00 the $50,000.00 balance would be called a deficiency. Under most loans in most states you would still be responsible for the $50,000.00 as an unsecured debt and the bank would have legal rights roughly the same as what would exist on a credit card debt to pursue you.
Is there any special redemption period after the foreclosure during which I could buy the house back?
This will vary from state to state. Generally, all states have a redemption period if you have the money available to completely pay what you owe.
What is the difference between a foreclosure and a sheriff's sale?
A Foreclosure auctions will be held by a mortgage holder after a default. A sheriff’s sale would be held by a lien holder or attaching creditor after default.
At the foreclosure sale will the attorney's and potential bidders have to come inside the house?
No. More than likely they will come onto the front lawn. If you would like to invite them inside the house you are welcome to but you are under no obligation to and they can not make you let them in.
Can the homeowner repurchase the home after foreclosure?
Some state laws provide for a redemption period following the sale, during which the homeowner may repurchase the property if he or she has the money. Other states allow the purchaser to take immediate possession
Can someone purchase a home after foreclosure?
Even though buying a home after a recent foreclosure is possible, homebuyer should not apply for a mortgage blindly. Because of your current credit standing, many lenders are ready to take advantage of you. Your options are limited. Nonetheless, this does not mean you have to accept a terrible mortgage loan.
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