A foreclosure can occur on any mortgaged property, whether it’s a private home or an office building. A foreclosure typically begins after the borrower has missed his third yearly payment, although this can vary by country or property type. Although the foreclosure procedure does not officially start until after a few missed payments, the lender normally contacts the borrower well before then, whether to remind him to create his payment or negotiate new provisions.
Foreclosure on Mortgage vs. Deed-of-Trust
A property can be bought via even a deed-of-trust or a mortgage. The distinction is that a deed-of-trust allows the lender to pursue a foreclosure via a”non-judicial ability of sale” (or even a”trustees sale”), which enables them to avoid lengthy and costly court processes. A mortgage, on the other hand, would require the lender to obtain permission from the court and follow its own protocol.
30 Days Past Due
The general timeframe when the lender starts the foreclosure procedure is 90 days after the last missed payment, however, the lender can speak to the debtor as early as 15 days beyond her payment due date. Most mortgage businesses provide the borrower about a two week grace period after the due date each month to create a payment without incurring any penalties. After the grace period, the borrower will begin to incur late fees and will have to bring her payments present within 30 days of their due date.
90 Days Past Due
The lending company will continue to speak to the debtor as soon as he starts to miss payments. But, it is not until the 90-day mark the lender starts to pursue the debtor. At this phase, the lender may issue a Notice to Accelerate, or Demand Letter, which specifies that the debtor has an extra 30 days to reinstate the mortgage prior to the lender officially begins the foreclosure procedure.
Notice of Default
The Notice of Default is issued after the debtor fails to reinstate the loan over the 30-day grace period stipulated in the Notice to Accelerate. Nonetheless, in some instances, the lender will forgo the Notice to Accelerate completely and issue the Notice of Default when the next payment is missed. In this case, the homeowner will have roughly three weeks (depending on state legislation ) after the issuance of this Notice of Default to make the mortgage current or the lender will repossess your property and auction it to the maximum bidder. The couple months involving the Notice of Default and the actual sale of this property presents a critical opportunity for the debtor and lender to negotiate and conserve the property from foreclosure.
Borrower Pre-Foreclosure Options
During the few months leading up to the foreclosure sale, the lender has many tools at their disposal to help the debtor save their property. These include financing modification, refinancing, repayment strategies, short-sale, deed-in-lieu or the President’s Building Home Affordable Plan (that is only available to homeowners who own the property for at least two years and made it their main residence). It’s in the lender’s best interest to maintain the debtor’s ownership of the property. Doing this would allow the lender to keep on receiving interest payments on their investment for a decade or so, thus increasing their profit. Furthermore, the lender’s primary objective is to originate loans that provide them with decades cash flow. Foreclosing on a property would indicate that the lender normally must sell the collateral for under market value, in addition to having spent a large sum on legal and government fees.
The Notice of Sale is issued after the three month or so period has died and all options, at this time, have been drained. The note will be delivered to the borrower at least 20 days prior to the purchase date and provide information at the time, place and date of their property auction. At this phase, the lending company will place ads in the local newspaper and place a”Notice of Sale” sign on the property itself. The borrower will have up to five days prior to the sale to reinstate the mortgage and stop the foreclosure procedure. Now, the lender will require the borrower to pay the entire loan amount to reinstate the loan. This provision depends on state law. If the sale date has not been postponed, then the land will have been marketed to the maximum bidder. The property will normally sell for significantly less than the market value, and any profits will be used to pay some or all the debtor’s debt to the lender. Otherwise, the land will become a bank-owned property, or REO property.
After the Foreclosure
The foreclosure process can occur between six weeks to over a year to complete, depending on the circumstances at hand. After the foreclosure and the land has been sold, state law may provide the debtor a limited period of time to keep in the property without fear of eviction. According to HUD, this is called the”redemption period.” The terms and existence of this provision depend on state legislation and also the sort of foreclosure proceeding. The state of California, as an example, provides a redemption period only after a judicial foreclosure proceeding and allows the homeowner to keep in the property for up to one year after the property has sold. Some states also permit the borrower to buy back the property by paying off your whole loan amount plus any fees incurred.