Foreclosing a property can be a scary time for anyone. There are many aspects of the law that apply when dealing with a foreclosure, and one such thing to be aware of is whether your property is undergoing a non-judicial or a judicial foreclosure.
In this article, we cover non-judicial foreclosures. Read more to find out about
- How Does A Non-Judicial Foreclosure Work?
- What Are The Pros and Cons of non-judicial foreclosure?
- How Does A Deed In Lieu of Foreclosure Work with Agricultural land?
How Does A Non-Judicial Foreclosure Work?
Many foreclosures are involuntary, proceeding through the courts like most other claims. Iowa provides a second option allowing for an alternative—non-judicial voluntary foreclosures.
A voluntary foreclosure requires a written agreement between the bank and the homeowner. The homeowner agrees to give the home back to the bank. The bank agrees that it will not pursue the homeowner for any deficiency remaining. A deficiency is the difference between the balance of the loan and the auction sale price of the home.
The bank has the right to maintain and protect the property once the agreement is signed. The parties then sign and record a document with the county recorder of deeds. The document states that the parties are engaging in a voluntary foreclosure. Recording the document puts the public on notice that the transaction is pending.
Any creditors who have liens against the property must be notified by the bank on the day that the transfer has occurred. The creditors have 30 days to exercise their right to pay the balance owed to the bank. If they do not, then the lien will be removed from the property.
What Are The Pros and Cons of non-judicial foreclosure?
Pros of non-judicial foreclosures include: the bank waives the right to pursue the homeowner for a deficiency judgment or other claim relating to the mortgage; saving expenses on court fees; and access to a much faster process. The creditor also cannot report to a credit bureau that the borrower is behind on the mortgage (though they can report that a foreclosure procedure was used to retain control of the property).
Cons include: the homeowner won’t be on a judicial foreclosure timeframe. Without engaging in the non-judicial foreclosure process, the homeowner could live in the property longer—but also face the possibility of a deficiency judgment. In that case, the homeowner could continue to live in the property until the redemption period expires and a judgment is ultimately entered. This right will not exist in involuntary foreclosures. The homeowner will have to bargain for the ultimate move-out date. Also, the borrower forfeits the right to recover any “overage”—the amount that a sale of the property may go over the overall loan balance. In those situations, it may be beneficial to seek the assistance of an Iowa foreclosure defense attorney to determine a best path forward. It is all about “gracefully” exiting the debt.
There may be other tax liabilities or benefits which may be positive or negative depending on the circumstances. O’Flaherty Law, P.C. does not do tax planning work—please consult with an accountant.
How Does A Deed In Lieu of Foreclosure Work with Agricultural land?
The borrower may enter into an agreement with the bank where the land is transferred to the creditor to satisfy all, or part of, the mortgage obligation outside of court. Both parties must agree to this transaction. This is similar to a non-judicial foreclosure on a residential property.
The agreement may grant the borrower the right to purchase the agricultural land for a period of, at most, five years. It may also entitle the borrower to lease the agricultural land. A statutory right of first refusal exists for the borrower, prior to selling the property. This means that the borrower can match or beat the proposed sale price. If not, there is a deed that transfers title to the bank.
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