Foreclosure Process
Apr 18th, 2009 by admin
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Timeline For The Foreclosure Process
The exact timeline for a foreclosure depends on the level of lender motivation and on the laws of the individual state where the home is located. All foreclosures follow a general timeline, but regulations vary by state. In addition, some lenders are less aggressive than others when executing a foreclosure.
A foreclosure is when the mortgage lender takes possession of a home or property after the borrower has defaulted on the mortgage loan. Mortgage lenders have various grace periods for payment, so while one lender might initiate foreclosure as soon as possible other lenders, especially in the current market, may be far more lenient and give borrowers a little more time before moving ahead with foreclosure.
Despite the variations in state regulations and lender enforcement, one thing is uniformly consistent:
In order to save their home, THE BORROWER MUST TAKE ACTION TO STOP A FORECLOSURE.
Dodging the lender’s letters and other attempts at contact or ignoring the problem and hoping it will go away will NOT solve the problem; in fact, those tactics usually make the lender nervous and cause them to accelerate the process, thus exacerbating the problem.
The actual timeline for foreclosure varies depending on the state, but most foreclosures follow this approximate timeline:
Mortgage Payment Missed
Just because someone misses a single mortgage payment does not mean their home is automatically going into foreclosure, but this is the first step in the process. This is also the best opportunity to avoid foreclosure proceedings because there is usually an opportunity to catch up and avoid foreclosure altogether.
If you know you’re going to miss a mortgage payment, contact your lender. Some lenders may allow you to skip a payment without additional fees.
Lender Tries to Contact Borrower
If the borrower does not contact the lender about the missed mortgage payment, the lender will begin to contact the borrower. This usually begins whenever the grace period expires for a late payment, usually after fifteen days. Some lenders may wait a little longer.
Lender Files Notice Of Default
If no payment is received and no contact or satisfactory repayment arrangements are made, the lender refers the loan to an attorney to begin foreclosure proceedings. A Notice of Default is filed and becomes public record and a copy is served on the property (usually taped to the front door or garage door) and also sent certified mail. The NOD gives the borrower a set number of days until the foreclosure sale - usually 60 to 90 days. The borrower can still stop the foreclosure by bringing the loan current, but by this point there will have been a number of additional fees, like late fees, attorney fees and filing costs, added to the balance.
As long as payment is received or some sort of suitable workout agreement or loan modification is completed, the home can still be saved.
House Is Sold At Auction
If the borrower is unable to bring the mortgage loan payments current and is unable to establish an alternate payment plan with the lender then the house will be sold at a foreclosure auction. The lender will usually try to start the bidding at, or set the minimum bid at, the outstanding amount of the loan, regardless of the actual fair market value of the property. After the auction, the borrower no longer owns the home and must move out. The amount of time the borrower is allowed to stay in the home depends on state regulations and sometimes other factors.
Once they receive a bid equal to or in excess of the amount owed on the loan, the lender will quickly end the auction. Anything they receive above what is owed on the loan plus fees is supposed to be returned to the borrower. This rarely happens however. A far more frequent occurrence is when the house sells for less than what is owed. This is called a deficiency or deficit.
After The Foreclosure Auction
The house will be sold to the highest bidder, even if the highest bid is less than what is owed on the loan. When this happens, the borrower is still legally obligated to pay the difference between what is owed on the loan, plus fees, and what the house sold for. If the house sells for less than what is owed, the lender will obtain a separate court judgment (sometimes called a deficiency judgment) which empowers them to collect the amount of the judgment plus interest. A deficiency judgment will remain in effect basically forever, as long as the lender (or subsequent owners of the judgment) keep it renewed and current. A deficiency judgment facilitates collection, including the ability to levy bank accounts, garnish wages, and in some cases seize property to be sold to satisfy the judgment.
Effects Of Foreclosure on Credit Reports / Credit Scores
Documents filed during the foreclosure (Notice of Default, etc.) are a matter of public record and will appear on a borrower’s credit reports for up to 7 years after the event concluded. A deficiency judgment is also public record and as long as it is unpaid but continues to be renewed by the owner, can remain on your credit report indefinitely, and up to 7 years after it is satisfied in full.
An open or unsatisfied judgment means you owe someone money and they have taken legal steps to compel you to pay. It also means that any new credit extended or property purchased can be attached for payment of the outstanding debt. It is for this reason that it is nearly impossible to obtain credit of any kind or purchase another home or property after a foreclosure.
If you are facing a home foreclosure, you should do everything possible to keep your home and avoid the foreclosure from being completed.