Understanding the foreclosure process is very important. It is the most crucial thing that you’ll need to know as a homeowner.
Before we dive in, let me tell you a thing or two about foreclosure…
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property securing a loan, generally if the buyer is delinquent or did not pay for a number of months.
Foreclosure is a horrible situation to be in. But just know that you can still get out of that situation.
Knowing how it works will equip you in to dealing with it. so make sure to do your research. there are different process of foreclosure in each state so make sure to know the process in your specific area.
The Basic Stages of A Foreclosure
The two ways different states use to foreclose upon a property are: judicial sale or non-judicial sale also called as power of sale.
In either scenario, most often than not foreclosure doesn’t go to court until 3-6 months of missed payments have elapsed. Usually, a lender will send out many notices that you overdue or behind in your payment.
Under Judicial Foreclosure:
- Your lender must file suit in the court system.
- You’ll get a court letter demanding payment.
- If the loan is valid, you’ll have 1 month or 30 days to bring payment to court to avoid foreclosure (that can be extended at times).
- A judgment will be entered and the lender can request the sale of your property – usually through an auction if you don’t pay during the payment period.
- Once the property is sold, you will be forced to immediately vacate the property.
Under Power of Sale (or Non-Judicial Foreclosure):
- The lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
What Happens After A Foreclosure Auction?
Once the foreclosure is complete, the loan amount is paid off with the sale proceeds. Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower. A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that lists the state by state deficiency judgment laws, since every state is different.
Generally, it’s best to avoid a foreclosure auction. Instead, call up the bank, or work with a reputable real estate firm like us at Candid Property Solutions to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
If you need to sell a property near , we can help you.
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Another Foreclosure Resource For HomeOwners: