Facing the prospect of foreclosure is a frightening event. Unless you or a person close to you has been through it, it can be confusing and difficult to understand the process, the timeframe, and your rights. Sometimes foreclosure occurs because you have been the victim of financial hardship. Other times foreclosure occurs because of a simple mistake. Regardless of what events led to the foreclosure being filed against you, you have some rights and defenses.
Having a decent idea of what foreclosure is and how it works can only help you when trying to figure out your next move. While this is an educational article worth reading to increase your knowledge, there is no substitute for hiring an experienced real estate defense attorney. Read on to learn more about what you can expect during a foreclosure.
What Are Foreclosure Proceedings?
In order to begin the foreclosure process, certain things have to happen. Here is a breakdown of what events need to occur before a foreclosure starts.
- You Take Out A Home Loan
That document will have specific terms and provisions governing what you pay the bank and when. Since each document can vary, you must understand what the agreement you are entering into entails. Too many people sign a note and mortgage without fully understanding what they are getting into financially. The agreement can include balloon payments, minimal notice, and other tools designed to make it challenging for you to mount any defense against a potential foreclosure action.
Never trust what the person asking you to sign the document says about it; get an attorney to review the documents for you and explain them to you. Many attorneys will review and explain documents for a flat rate. There are likely terms and provisions in the document that seem harmless but are set up to cover the bank, not you if trouble arises.
If the bank doesn’t want to give you time to have your attorney review the loan, get a different bank. That should be a big red flag. You are allowed to consult with counsel before signing any legal contract. If the bank gives you a hard time waiting to sign until your attorney has looked at it, don’t enter into an agreement with them.
- You Fall Behind On Your Payments.
For whatever reason, sometimes, through no fault of your own, you fall behind on your payments. Depending on what the loan agreement says, it might be a month or two before the bank reaches out to you about the missing payment but make no mistake, they will reach out. It usually starts with phone calls or emails, depending on the agreement. DON’T ignore the bank. This is your opportunity to explain that you are having some trouble and ask them if they would be willing to work with you on a solution. Try to keep these conversations in writing and reach out to the bank via email so that you have an independent record of trying to get it fixed. If you end up having a phone conversation, take extensive notes and make sure you note the full name of the person you spoke with and any other identifying information. This is sometimes referred to as the loss mitigation period and can go on for an extended period. If you are actively working with the bank or your mortgage servicer in order to find a livable solution, you are engaging in loss mitigation.
If you do not take these steps and continue to miss payments, for whatever reason, the bank will have to send you written notice. The timing of the notice should be included in the note and/or the mortgage agreement. Check your agreement carefully. It must tell you what the bank will do if you fall behind on your payments. Notice to the borrower is absolutely required, in writing, before starting any foreclosure proceedings. Depending on which state the property is, it could be called a notice of default since you have defaulted on your loan payment, or it could just be called a notice of sale if you live in a non-judicial foreclosure state. Here are some definitions:
Non-Judicial foreclosure state- the lenders can simply initiate the process without filing it in court. In some instances, the borrower can ask for judicial foreclosure. Look for something in your mortgage agreement that refers to a “power of sale.” If the lender retains the power of sale and it is in agreement with the state law, then you are in a non-judicial foreclosure state.
Judicial foreclosure- The bank has to file paperwork and get hearing dates to proceed with the foreclosure. The majority of states are judicial foreclosure states.
Notice of default-a notice of default is typically recorded at the county recorder’s office, and a copy is mailed to the borrower. It will state that you are in default of your loan and what needs to be paid in order to stop the foreclosure process.
Notice of Sale-if you are in a non-judicial foreclosure state, the lender can mail it out to you and publicize the notice of sale. The lender can have the notice of sale recorded at the county recorder’s office, published in the local newspaper, and posted in public or on the property itself.
- The Lender Has Initiated The Foreclosure.
Once the notice of default or sale has been appropriately circulated, the lender can take the following steps, depending on what type of foreclosure state the property is located in.
In a non-judicial foreclosure state, the lender will move forward with the sale that the borrower has been appropriately notified of. All states allow for something known as the right of redemption. You may have some time and possible options before you have to vacate the property. If the property sells for less than what the borrower owes, the lender can choose to file a deficiency action against the now homeless borrower. If the lender is successful in winning the deficiency action, the lender will have a personal money judgment against the borrower and can take action to collect that debt.
If you wish to exercise the right of redemption, you may have a chance to keep your property, but it will be an expensive undertaking. The right of redemption means that you will have to pay off the entire mortgage balance, plus costs and fees before the foreclosure sale takes place. Usually, this means that someone will have to loan you money in order to do so. If you have fallen behind on your current mortgage and are suffering from financial hardship, this can be difficult but not impossible. In fact, there are lenders who specialize in this type of loan. What is really important is that you think through the possible consequences. You will end up paying more than just the original amount you borrowed from the first lender. Decide how important keeping the property is to you and what you can reasonably afford. If the new lender moves quickly and is willing to work with you, you may have a solution to retaining your home.
It’s also essential to know the redemption period in your state. Some states allow six months, others more or less time. The courts understand that it takes time to obtain financing, which is why the redemption period exists. Be very confident of when the clock starts running on your redemption period and plan to have a new loan secured before it runs out. An experienced foreclosure defense attorney can assist you with understanding your next steps if you want to exercise your equitable right of redemption.
In a judicial foreclosure state, the lender will file a petition for foreclosure, among other papers. The legal process will give you time to file an answer. The answer is where you, or your attorney, will allege any defenses you have to allow the foreclosure to proceed.
Typically, a lot of foreclosure defenses rest on the lender not adhering to the note and mortgage. If, for instance, the lender did not give the borrower appropriate notice as required by the note and mortgage, the foreclosure can be stopped temporarily. The borrower can also try to show that the mortgage servicer has made some mistake, also slowing down or stopping the mortgage. Finally, the borrower can attempt to show that the lender is engaging in some type of illegal activity under state law.
A lot of the time, this type of approach is really just to allow the borrower time to refinance the loan in order to put themselves out of default. The lawyer slows down the foreclosure in order to get the borrower some breathing room and to create space for the borrower to explore options. There are also many states which allow, if not require, that the lender and the borrower attend mediation prior to the court moving forward on any foreclosure sale. This process can add months to the timeline and really create opportunities for the borrower and their attorney to find possible ways out of the house being foreclosed on.
To be perfectly frank, many courts do not like to foreclose on people. Many courts that handle foreclosure proceedings sit in equity. What “in equity” means is that the court can usually do what the court thinks is fair, depending on the facts and circumstances of each borrower’s situation. If the court sees evidence of a person working very hard to keep their home, the court has the power to give them a bit of a break if the court sits in equity. This does not mean that the court can just say it doesn’t think it’s fair and dismiss the foreclosure, but the court can grant the borrower time to find a solution to their problem. An experienced foreclosure defense attorney in your state will be able to discuss how the local courts tend to approach foreclosures and if you have a shot at getting some extra time or even a favorable hearing result.
- What If The Foreclosure Defense Fails?
If the clock runs out and the foreclosure process is completed, you will want to know when you have to vacate the property.
Regardless of what state you live in, the bank will have to evict you in order to get out of the foreclosed property. The bank will have to serve you with a notice to quit the premises prior to starting the eviction proceedings. A notice to quit varies from state to state; it could be anywhere from three to thirty days before the lender can file for eviction in court, which could take another month or two.
Non-judicial foreclosure state-if the property is sold and the borrower is still in the home after the redemption period expires, the lender will have to file with the court to evict them. Just because the property has sold does not mean that the bank can just throw you out. The borrower must be properly and legally noticed, and the court must approve the eviction. While the borrower may be angry and want to fight the eviction in court, it’s really just borrowed time. Even if the lender improperly attempts to evict and is not successful, they will just return to court again and again in order to get you off the property. Eventually, the bank will get the eviction, and then they can have the sheriff come out to the property and take you off the property.
Judicial foreclosure state-if the court approves the foreclosure, then the lender will have to wait for the redemption period to run before taking any action to get the borrower off the property. In some ways, this could be a blessing; it will allow the borrower time to either redeem the property or find a new place to live.
An eviction action can offer financial relief. If the eviction takes a month or two to get through the court system, that is the time the borrower has to live in the house without making payments on it, freeing up some much-needed money for the borrower.
Caution, in some states, the lender can include the eviction action in the foreclosure proceedings. The lender can post something called a writ of possession, which gives you a short timeframe to leave the property, or the sheriff will come and remove you. Check the foreclosure paperwork to determine if an eviction action is included in the foreclosure action and prepare accordingly.
Hopefully, this article has given you a clearer picture of what can happen during foreclosure proceedings and what you can do if you need help. If you are in danger of being foreclosed upon, the best course of action is to consult an experienced attorney who can evaluate your situation and provide advice and support. Feel free to give O’Flaherty Law a call. Our experienced foreclosure defense attorneys will be happy to help.
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