When a borrower is behind in the mortgage payment for 3 to 4 month, a lender can start the foreclosure process, meaning forcing the sale of a property to pay the debt.
When the process is complete, the lender can sell the property to obtain the proceeds to pay off the debt and pay any legal costs. If the sale does not bring enough to pay the balance of the loan and fees, and the promissory note was made with a recourse clause then the lender can file a claim for a deficiency judgment.
Every state in the U.S handles it’s real estate foreclosures differently, it’s important to understand those differences and know the procedures in your specific state.
The terms used and time frames vary greatly from state to state, but the following information provides a general overview of the processes and considerations.
The mortgage and deed of trust contains a power of sale that allows the lender to sell the property in the event the borrower fails to comply with their payments. However, the lender has to follow the steps below.
What are the first steps a lender must take to foreclose a property? The process begins when the lender files a Notice of Default with the county recorder’s office where the property is located. The lender must file a notice of default and send it to any party who is liable for the property. The notice of default includes information such as the amount of debt and information indicating the amount to be paid if you do not want them to dell the property.
The deed of trust contains instructions detailing when the lender will consider the property to be in default and when it will begin the foreclosure process.
What happens after a Notice of Default is recorded against a property? After a notice of default is recorded against a property, the borrowers have 90 days before the lender issues and records a Notice of Trustee Sale at the county recorder’s office.
What is a Trustee Sale? A trustee sale is a public sale where the lender will auction the property to pay the amount owed on the mortgage. After 90 days, the notice of default ends, the lender will issue a Notice of Trustee Sale. The Notice of Trustee Sale must be placed at the home and in a public place in the county where the property is located and published in a newspaper of general circulation not later than 20 days before the execution of the foreclosure sale. The notice of sale will include information about the date and time of the sale, where the sale will take place and the total balance need to pay the mortgage debt.
Can a person cure a default after the notice of default is recorded against a property? Yes, you have the right to cure the default and stop the process at any time up to 5 days before the date scheduled for trustee sales. The amount you must pay to cure the breach may include costs and attorneys fees.
What if you can’t pay the amount due? You have options to avoid the foreclosure of your property. Here are some examples of what you can do:
1. Payment plan: Your lender may arrange a payment plan based on your financial situation and may even provide a temporary reduction or suspension of your payments. To qualify for this option, you have to show that you recently suffered financial difficulties. You must provide proof that you will be able to make the new payment.
2. Mortgage Modification: You may have the opportunity to modify your loan with your lender. You will have to prove to your lender that you can meet their new obligations of the loan.
3. Short Sale: Your lender would sell the house for less than the outstanding loan amount. You may be able to sell your home yourself; however, if you put your house on the market after receiving the Notice of Default, you may not have enough time to sell it before the trustee sale.
Every homeowner should contact their lender as soon as they realize that they can’t make their mortgage payment on time. It is imperative that you contact your lender to discus your situation, and look at your options so that you can avoid foreclosure. If you let too much time go by, you will be reducing the number of options that are available to help you keep you home. Time is of the essence, you need to act now.