"The Foreclosure Process"

The Foreclosure Process

Due to federal and state laws, lenders must follow a specific process in order to foreclose on a property.

First, you need to understand when a lender is allowed to foreclose on a property. The process starts with the mortgage itself. A mortgage creates few covenants:

This is the agreement that the homeowner must adhere to. If those covenants are breached, the bank must pursue numbers to foreclosure.

Two things happen in case of a default in payments. One provides for the appointment of a receiver, typically a lawyer who conducts the sale of the property. The other allows the bank to accelerate payments and ask for the entire balance. If the bank’s lawyers take a homeowner to court they want all of the money, and if it can’t be paid they want a judgment against the homeowner. They want out of the deal because the homeowner has not lived up to his or her obligations.

It’s important to note that until a judgment has been obtained the homeowner is not truly under threat of foreclosure. Once the judgment is obtained the homeowner can be put out of the property immediately.

After a judgment has been handed down against the homeowner in breach of contract, a time is set for the public sale of the property at auction. If the homeowner can’t come up with the entire amount of the judgment award before the sale… that’s the end for him: no more delays, no more compromises and the sale will be held. Often these sales are held at the courthouse, and in many cases are actually held on the courthouse steps.

The court then appoints a receiver, typically a lawyer to conduct the sale of the homeowner’s property. Ordinarily, real property can’t be transferred without both parties in the purchase agreement signing the transfer deed. Since the homeowner is unlikely to voluntarily sign away his or her home, the lawyer has the legal authority to sign a valid deed transferring the ownership to a new purchaser.

Let’s look briefly at the stages of foreclosure.

If you’ve missed a payment, you’re normally sent a letter stating the missed payment and requesting immediate payment of the past-due amounts. Once you’ve missed several payments, you’ll be sent a letter from the bank. Receiving a letter from the bank means there is a serious problem. Once you hear from the bank's lawyer, it means the bank has committed resources to getting you to pay on time the amount due.

If you can’t reach an agreement with the lawyer you’ll be served with a summons. Then the attorney will also file papers with the county courthouse. All other individuals with claims against the property, they’re called “junior” obligations like second mortgages, judgments, or other liens, are served with papers so they have the right to try to protect their interests as well. (It’s important to note that if the foreclosing party is negligent in notifying junior lien holders, those creditors have a valid claim for repayment against the eventual new owner of the property. That’s why purchasing title insurance when buying foreclosure properties is absolutely necessary: you protect yourself against subsequent claims you didn’t know about.

To enforce judgments you have to be served personally. That’s one reason foreclosure actions can take so long as the homeowner must be tracked down and physically handed the summons. Often the homeowners will avoid being served. Each jurisdiction has different laws and rules, but generally speaking if a person can’t be located and all reasonable efforts have been made to find them, a procedure for publication is put into place. This typically consists of a public notice printed in the classified section of the local newspaper.

Most jurisdictions also require public notice whether or not the homeowner has been served. This allows parties with a legitimate claim to come forward to protect their interests.

After the publication process is complete the foreclosure action will proceed. If you can’t come to an agreement with the bank’s lawyer, and can’t come up with the money to pay off the loan, your property will be sold at a foreclosure auction, and you’ll be evicted from the property  unless you have left already.

The legal proceedings can take months to complete.

 

Andre Plessis

Andre Plessis
"The Mortgage Guru"
"A Mortgage Professional whose primary goal is to provide the expertise, guidance and skills necessary to obtain the best mortgage to meet your personal needs".
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