Phase : Notice Of Default
A notice of default is sent after the fourth month of missed payments . This public notice gives the borrower 30 days to remedy past due payments before formally starting the foreclosure process.
Most lenders will not send a notice of default until the borrower is 90 days past due . Thus, many times a borrower can fall behind a month or two without facing foreclosure.
Generally, federal law prohibits a lender from starting foreclosure until the borrower is more than 120 days past due.
How Does A Trustee’s Sale Work
Mortgages and deeds of trust are both agreements in which a borrower puts up title to real estate as security for a loan. While these documents are similar, they have one major difference: the parties involved. While a mortgage involves two parties, a borrower and a lender, a deed of trust usually has three parties: the borrower, the lender, and a trustee. Depending on state law, a trustee might be an individual, like an attorney, or a business entity, like a bank or a title company. Sometimes, state law limits who may act as a trustee in specific ways.
In states that use deeds of trust to create a property lien, the foreclosure is normally nonjudicial, and the trustee normally handles the process. Sometimes the lender designates a substitute trustee, a party other than the original trustee, to manage the foreclosure. The trustee, or the substitute trustee, prepares the foreclosure documents, files them in the land records, sends any required notices to the borrower, handles a reinstatement or pre-sale redemption , and holds the sale, called a “trustee’s sale.”
Getting Help From Foreclosure Attorney
You have the right to a fair and impartial handling of your affairs. An proficient
foreclosure attorney can help you navigate the process of a foreclosure and dealing with a foreclosure trustee. Let us help you by filling out the form for a free consultation with a foreclosure attorney at the Law Office of Yuriy Moshes P.C.
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Power Of Sale Vs Foreclosure
If you own a home but are not familiar with real estate law, the differences between Power of Sale and Foreclosure can be confusing. If you are also in financial difficulty or otherwise facing the possibilities of Foreclosure or Power of Sale proceedings, its very important to know which one applies to your situation. Foreclosure vs. Power of Sale can mean the difference between having a few months to leave your home, and having a few weeks or less.
What is a Power of Sale?
Under the Power of Sale system, in other words, the role that the courts used to play has been largely replaced by the trustee. All the lender needs to do is inform the trustee that the borrower has defaulted on their mortgage. The trustee then uses the Power of Sale to sell off the home, and recover the lenders money.
In short, a Power of Sale can be very fast. Often, the home may be sold within weeks.
What is a Foreclosure?
A Foreclosure is a drawn-out, painful, and costly process. Not just for the homeowner, either. Lenders almost invariably lose money on Foreclosures, simply due to the inefficiency of going through the court system. This is because any Foreclosure requires the lender to sue the homeowner in court, and wait for the court to issue a judgement turning the home over to the lender. In fact, the name Foreclosure comes from the legal process of foreclosing on the property owners right to sell the property in order to make good on the mortgage.
Phase : Real Estate Owned
The lender will set a minimum bid, which takes into account the appraised value of the property, the remaining amount due on the mortgage, any other liens, and attorney fees. If the property is not sold during the public auction, the lender will become the owner and attempt to sell the property through a broker or with the assistance of a real estate-owned asset manager. These properties are often referred to as bank-owned, and the lender may remove some of the liens and other expenses in an attempt to make the property more attractive.
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Know And Understand The Six Key Steps
Foreclosure is the process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property. Although the foreclosure process varies by state, there are six common phases of a foreclosure procedure.
Short Sales Vs Foreclosures: An Overview
After years of disciplined saving and careful planning, a sudden financial crisislike unemployment, other income loss, interest rate hikes, or an unexpected debt burdencan turn your hard-won dream of home ownership into a nightmare.
If you get behind on your mortgage payments or if your mortgage is underwater , homeowners have two primary options: a short sale or a foreclosure. The owner is forced to part with the home in both cases, but the timeline and other consequences are different in each situation, so it is important to understand the benefits and penalties of each option.
A short sale is a voluntary process. When the homeowner sells the property for an amount that is far less than what is owed on the mortgage, it is called a short sale. For example, if a homeowner owes $200,000 on the mortgage, but a financial crisis forces them to sell the home quickly for $175,000the remaining amount on their mortgage plus any costs associated with the sale are still owed by the homeowner.
A foreclosure, on the other hand, is involuntary. In this case, the mortgage holder takes legal action to seize the home after the borrower fails to make a specific number of monthly payments. In a foreclosure, the lender takes ownership of the mortgaged property and sells it to recover the amount owed to them on the mortgage.
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More About The Preforeclosure Process
If a homeowner cannot pay their mortgage, but does not want to sell their home, then after three months of non-payment, the home may enter preforeclosure. The bank or lender will file a notice of default, and the homeowner will be notified that if they fail to catch up on missed payments in a specified amount of time , their home will revert to the banks ownership, and it will go to auction.
Sometimes this legal action will motivate a homeowner to sell, and they will list the home on the market. This could end up being either a distressed or short sale, as described above. In other circumstances, however, the homeowner does not want to leave the home and may choose to stay through the process of eviction and foreclosure.
A savvy buyer may decide to look at preforeclosure listings either themselves or with the aid of a real estate agent. When a home is on the market, you may have to compete with other potential buyers. But by seeking out a preforeclosure, you may not only forego the competition, but its also sometimes possible to negotiate a good deal if the homeowner is anxious to resolve their financial difficulties.
Keep in mind, however, that some homeowners might not be happy to hear from you. Its worth noting that when a home is in preforeclosure, you cannot bypass the homeowner and attempt to negotiate a sale through their bank. The homeowner must agree to sell.
Judicial Vs Nonjudicial Foreclosures
Judicial foreclosures require the mortgage lender to file a lawsuit against the homeowner. The process is overseen by a judge. The lender has to give notice of the lawsuit to the homeowner and then prove to the judge in court that the homeowner has defaulted on their loan. This is how the lender can exercise the power of sale clause in the mortgage. This clause lets the mortgage lender repossess the house and sell it to the highest bidder through a foreclosure sale.
No foreclosure trustee is involved in a judicial foreclosure. Judicial foreclosures are usually seen as better for homeowners because they provide the homeowner with more legal protections.
The following states only allow judicial foreclosures: Connecticut, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, South Carolina, and Vermont.
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Deed In Lieu Of Foreclosure
A borrower may be able to prevent foreclosure by simply giving the lender the title of the property. If the lender accepts, the borrower can transfer the title to the lender, eliminating the need of foreclosure thus, it is called a deed in lieu of foreclosure , because it is agreed to by the lender and borrower. The borrower is released from the debt and does not have to worry about a deficiency judgment. Another advantage to the borrower is that a deed in lieu of foreclosure is less damaging to his than a regular foreclosure. The advantages to the lender are the savings in the time and expense of a foreclosure, and the lender is more likely to receive the property in better condition.
While expedient, a deed in lieu of foreclosure has disadvantages for both borrower and lender. The main disadvantage for the borrower is that it is listed as a negative item in his credit report. The main disadvantage to the lender is that the property still has all junior liens attached, whereas in a regular foreclosure, all junior liens are eliminated. The lender will also lose any rights under FHA and VA guarantees, and will not receive any payment from any mortgage insurance that the borrower may have had.
From First Missed Payment To Reo: A Summary
Hopefully at this point, the terminology has become clearer, but heres a quick refresher if you need it:
- Distressed sale: When a homeowner needs to sell quickly, and potentially at a loss.
- Short sale: A type of distressed sale in which the sales price is less than what the homeowner owes on the property.
- Preforeclosure: When the homeowner has missed three consecutive payments, the bank or lender files a notice of default. Homes in preforeclosure are publicly listed. In order to purchase a home in preforeclosure, you must contact the homeowner however, they are not required to sell the home.
- Foreclosure: Process by which the bank or lender forces the sale of the property at an auction after the owner has not made payments for a specified period of time.
- Foreclosure auction: A public event in which investors or buyers may bid on a foreclosed home. You will not likely be able to inspect or see the home prior to the auction. You typically cannot get a mortgage loan for a home purchased at a foreclosure auction.
- Bank-owned: Homes that do not sell at auction become owned by the bank. These homes are generally listed for sale, often as-is, on the banks website.
- REO: Stands for real estate owned this is the same thing as bank owned.
What Is Substitution Of Trustee In Foreclosure Process
A trustee is named in a deed of trust, but it is not the same person who governs the foreclosure process. The lender chooses the latter trustee for the foreclosure. Previously it was mentioned there may be an implied bias on part of the trustee since they are typically chosen by the lender. If you feel the trustee is not living up to their expected obligations and duty to be impartial, you can attempt to delay the foreclosure process until a proper trustee is brought on board.
Trust Deed Sale Vs Foreclosure
Land transactions are expensive. Lenders will not freely provide borrowers with money unless they have some protection against the risk that the borrower will default. If the borrower defaults, the lender may reclaim the property. Lenders have two primary ways they reclaim real estate when a borrower defaults: under a power of sale or through a foreclosure. Both processes are very different, even though the result is the same.
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What Are Your Options If You Are Behind On Your Mortgage
If you have fallen behind on mortgage payments, its in your best interest and the lenders best interest to come up with a plan that works for both parties. Lenders just want their money, and you may just want to keep your home. If you cant catch up, there are other options to stop or deal with the financial results of foreclosure for mortgage arrears.
Ask for a payment deferral. This was a common occurrence during COVID-19, but mortgage lenders have been granting short term deferrals or mortgage extensions in extenuating circumstances long before the recent economic crisis.
Renegotiate the mortgage. If you have a 15-year amortization, the lender may agree to a loan modification to restructure your mortgage under a 25-year amortization, for example, and include all arrears in the new mortgage. You now have no arrears and a lower monthly mortgage payment because its stretched out for a longer time.
Find a new lender. If your lender wont renegotiate, get a payout figure and consider a new mortgage with another mortgage lender. Be aware that alternative, private mortgages come with a higher interest rate to compensate the lender for the added risk. Refinancing is more viable if you have higher equity in the home.
Sell the house yourself before the bank can foreclose. You may get a better price than your lender, but more importantly, if you expect there to be positive equity after the sale, you want to retain any potential capital gains for your own benefit.
How Mortgage Foreclosure Works In Canada
Foreclosure can happen when the mortgage lender isnt getting paid. If you stop making your mortgage payments, your mortgage lender can take you to court and sue you, and if the court agrees, the lender can take over title to your property.
A foreclosure is the transfer of full ownership in a property to the mortgage lender. In a foreclosure process, the mortgagor, or homeowner, gives up all rights to the property, including any equity value built up in the home. Once your mortgage lender forecloses on your property, they own it. They can do what they want with it, which may mean fixing it up, renting it out, or most likely selling it.
Foreclosure is a lengthy and costly process. Your lender will first file a Statement of Claim with the court, to which you have 20 days to respond with a defense. After that period, your mortgage may be declared in default. Your lender will next ask for a remedy in the form of a foreclosure order. If the court feels there is any chance you can catch up, the court can issue a Redemption Order. The Redemption Order gives you a stated period of time to get current with your mortgage payment.
Usually, the redemption period is six months. You can ask the court to extend the time, and the lender may ask the court to shorten the time.
The key here is you can stop foreclosure proceedings if you either get current with your mortgage payments or pay off the mortgage during this time frame.
This is where bankruptcy can help.
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Complications For Buyers In Foreclosures Vs Short Sales
Foreclosures and short sales offer deep discounts for buyers. Someone buying a house in a short sale can expect the home to cost 10% less than an ordinary home on the market foreclosures are even cheaper,often by about 30%. However, these purchases are not without complications.
The most common problem with foreclosed properties is that they are often sold as-is, so the house may need repairs, which are sometimes very expensive. When a foreclosed property is purchased in an auction, the buyer must pay cash on the same day, which means they cannot get the property inspected, and therefore have no idea about the extent of repairs needed. Sometimes, the buyer of a foreclosed property may be required to pay unpaid property taxes from the previous owner. Finally, redemption laws allow borrowers to reclaim their foreclosed homes, even if the home was sold to a new buyer after foreclosure. This can cause many complications for buyers of foreclosed properties.
Mortgages And Deeds Of Trust Contain Comparable Terms
Mortgages and deeds of trust tend to have many of the same general provisions. For example, most mortgages and deeds of trust require the borrower to have homeowners’ insurance and maintain the property in good condition. Also, both mortgages and deeds of trust give the lender the ability to sell the home through a process called foreclosure if the borrower fails to make payments or breaches the contract in some other way.
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Bankruptcy As A Preventative Measure
Bankruptcy does not deal with secured debt, so filing bankruptcy itself will not legally stop a foreclosure order. However, a bankruptcy proceeding can work as a proactive decision to eliminate other problem debt and improve your cash flow enough that you can afford to catch up on your mortgage payments.
When you file bankruptcy, you dont necessarily have to lose your home. If you can keep your mortgage payment current, Canadian bankruptcy law protects you. Rules around bankruptcy and mortgages say that a secured lender such as your mortgage holder may not cancel your loan just because youve declared bankruptcy or filed a consumer proposal.
In any bankruptcy proceeding, you do have to deal with any non-exempt equity in your home. For example, in Ontario, if the equity in your home is above $10,000, you will have to arrange to pay the equivalent to your Licensed Insolvency Trustee if you want to keep your house. To make these payments more affordable, you can consider a consumer proposal as an alternative to bankruptcy. Bankruptcy and home equity laws vary by province, so it is important to speak with a Licensed Insolvency Trustee about your situation.