Home Foreclosure 101
‘Foreclosure’ is a frightening word that causes homeowners from all walks of life an incredible amount of stress and worry. The truth is a home foreclosure can happen to anyone no matter a person’s financial status. Circumstances change quickly in a household. Homeowners can fall behind on their mortgage payments. Before you know it, the letters begin to arrive from the mortgage company. This can be a very stressful time. It’s is important to educate yourself, so you know your options and understand the process.
What is a Foreclosure?
When a borrower falls behind on their payments, lenders initiate the foreclosure process. If the homeowner is unable to bring their loan back to a current standing, the lender puts the property up for auction (sale). The home is then sold to the highest bidder. If a bidder does not step forward to purchase, the lender will take title to the property. Shortly thereafter, the lender will put the property up for sale via a real estate company. There are stages in the process so there is still time to look for options to avoid home foreclosure.
Home Foreclosure Categories.
There are two different types of foreclosure processes, depending on the state you reside. Though, there are fundamental similarities throughout the process no matter where you live. During the process you’ll receive notices along the way so you know how much time you have—or don’t have.
In states such as California, the foreclosing lender isn’t obligated to utilize the civil court system. When a California borrower signs a mortgage, a deed of trust form must be signed as well. The deed of trust includes a power to sell clause. The power to sell clause allows the lender to sell your property after the foreclosure process. Here is a brief overview of the non-judicial foreclosure process:
- Step 1: The borrower will receive a notice of default after missing payments (typically 90 days in default/missed payments).
- Step 2: The borrower will receive a notice of Trustee Sale. This notice can be recorded 3 months after the notice of default is issued. Auction date for the property is set at this time, as well.
- Step 3: The auction date can be set for 21 days after the notice of the Trustee Sale.
- Step 4: The auction occurs and property is sold to the highest bidder. If there is not a bidder, the lender takes ownership of the property. Then, markets the property for sale through a real estate company.
In states such as IL, the foreclosing lender must follow what is called the judicial process. This will go through civil court as a civil case. An attorney will represent the lender through this process. Here is a brief overview of the judicial foreclosure process:
- Step 1: The borrower will receive a notice of default after missing payments (typically 90 days in default).
- Step 2: The foreclosing lender will file a lis pendens notice within the county’s civil court system with the county clerk.
- Step 3: There is a pre-foreclosure period wherein which a borrower can still reinstate the loan and bring it to current standing.
- Step 4: After the pre-foreclosure period of about 30-120 days, if the loan has not been brought to current standing, the lender will file a judgment of home foreclosure. At this time, a sale date is set for the property to be sold at an auction.
- Step 5: At the auction (judicial sale), the property is sold to the highest bidder. If there is not a bidder, the lender takes the title to the property and markets it for sale through a real estate company.
How Do I Stop A Foreclosure?
There are ways to stop a home foreclosure or hold off a foreclosure for a period of time. The ultimate solution is to bring your loan back to a current status. That is, if you’re able. But what if you can’t afford to do that? Other suggestions include filing bankruptcy or other debt relief options. Unfortunately, those are merely bandaids that can only hold the lender off for so long. In a non-judicial state, an auction can be postponed for a year if the homeowner files bankruptcy or comes to an agreement with the lender. Ultimately, a decision needs to be made for your future.
There are other options such as a loan modification, short sale or even a deed in lieu of foreclosure. The important factor is finding out which option is best for you. You are not alone and we can help you find your best solution. If you would like to discuss your options, please give us a call at 949-413-7911 or contact us.