The foreclosure process is a very stressful time and can be really confusing for homeowners on top of the financial instability that you are already facing. It is a good idea if you feel that there is going to be a foreclosure in your future, to become familiar with the foreclosure process before it begins. This will give you the insight that you may need to keep a level head once the foreclosure process starts. Then, when you speak with a foreclosure defense professional you will be able to understand what they are telling you and you will be able to provide the feedback that they are going to require to assess your situation better.
Judicial and non judicial states have different foreclosure processes and the process can very greatly depending on which. You need to look at your local and state laws regarding the foreclosure process, so you can see the different stages and how they may effect you.
Foreclosure Process Stages
Missed mortgage payments are usually are the culprit of the foreclosure process. The foreclosure process consists of many different stages that take different lengths of time to push through and is dependent on the mortgage lender, time your account is delinquent and the state you live in.
What is Pre-foreclosure?
Pre-foreclosure is commonly considered one of the first stages of the foreclosure process. This can occur when a mortgage lender sends a homeowner a Notice of Default after one or more delinquent mortgage payments. For the process to officially start, lenders are typically required to file paperwork with the local clerk of the courts indicating the loan has moved into default status.
Pre-foreclosure can be a scary time for homeowners since it typically indicates the start of the foreclosure process. How a homeowner responds to his or her mortgage lender after receiving a Notice of Default can make a huge impact on how the foreclosure process plays out. Some homeowners may choose to sell the property at a short sale, some may choose to pay the delinquent mortgage amount in order to bring the loan current and some homeowners may choose to let the home fall into foreclosure. In any case, it can be wise to respond to mortgage lenders as soon as possible after the pre-foreclosure process has been initiated.
Pre-foreclosure may be able to offer some benefits to homeowners who cannot continue to afford their home, homebuyers looking for a good deal and mortgage lenders with homeowners in default status.
- Benefits to Homeowners – While a home is in the pre-foreclosure stage of the foreclosure process, homeowners may be able to avoid foreclosure by selling the home or pursuing a foreclosure defense strategy. Selling the home during the Pre-foreclosure stage can help the homeowners get out from a property they cannot continue to afford without the damaging effects of a foreclosure. Pursuing a foreclosure defense strategy may help to stop the foreclosure process before the homeowner loses the home.
- Benefits to Homebuyers – Homebuyers may be able to purchase homes in the pre-foreclosure process at a significantly reduced cost than the home’s current market value. Some homes may be sold for up to 40% below the fair market value.
- Benefits to Lenders – Mortgage lenders typically prefer pre-foreclosure sales as opposed to following through with foreclosure proceedings. This way, mortgage lenders are often able to avoid the high costs associated with following through with foreclosure. Additionally, mortgage lenders can gain a financially stable homeowner as opposed to one who cannot continue to afford the home.
Pre-foreclosure considerations should be taken into account for homebuyers looking to pick up a home for a great deal. Homebuyers should remember the sale of a pre-foreclosed home may take longer than purchasing a home that is not in some stage of the foreclosure process. Also, homes in some stage of the foreclosure process are commonly sold “as-is” so the home may require significant repairs.
What is a Notice of Default?
A Notice of Default can be any statement (typically written), from one party to another, asserting the recipient did not follow through on the terms or conditions of an agreed upon contract. A default simply means a failure to satisfy a commitment. A Notice of Default is commonly used in real estate law during the foreclosure process, but it can also be used in lease situations, or any contractual obligation.
It is important for individuals to understand how a default notice works with respect to the foreclosure process so they can properly prepare and respond to the claim. Failing to respond to a default notice could accelerate the foreclosure of a home, and limit a homeowner’s chances of preventing foreclosure.
Notice of Default in the Foreclosure Process
A Notice of Default , in real estate, is typically the first formal document to inform homeowners of the initiation of the foreclosure process. These foreclosure notifications tell borrowers he/she failed to make their mortgage payments by the predetermined deadline, and have thus defaulted on their mortgage contract. Failure to have insurance cover for a property, or not paying property taxes can also result in a Notice of Default, and an initiation of the foreclosure process.
A Notice of Default is usually recorded in the county recorder’s office upon filing, and may potentially negatively affect a borrower’s credit rating. The way a default notice works in the foreclosure process varies slightly based upon whether the borrower lives in a judicial or nonjudicial state.
Notice of Default in Judicial States
A Notice of Default in judicial states works slightly differently than in nonjudicial states since foreclosures must be processed through the courts. Lenders must first file a complaint and record a NOD in the county records. Homeowners approaching foreclosure may get a pre-filing notice informing them of an imminent start to foreclosure proceedings. After this time, homeowners will likely get a summons and complaint informing them foreclosure proceedings will soon begin.
Notice of Default in Nonjudicial States
A Notice of Default in nonjudicial states occurs when mortgage lenders record a NOD in the county records, and typically mail homeowners a default letter. If the homeowner does not resolve the default within the prescribed period of time, a Notice of Sale can be mailed to the homeowner, posted in public, recorded at the county record office, and printed in local newspapers.
The reinstatement period is time that is given to the homeowners that have defaulted to get current and repay what is owed to due to missed payments. The reinstatement periods can very greatly in length from 2 months to about 12 months. It is important for homeowners that have received the notice of default to check with the local laws to determine the length of this period. If the back payments have not been made by the end of the reinstatement period, the banks will more than likely attach a sale date to the foreclosure paperwork.
Notice of Sale
A notice of sale in the foreclosure process typically outlines the location, time and date for the auction of a home in foreclosure. This commonly occurs at the end of the foreclosure process. A notice of sale is usually sent out after a notice of default has been sent, but this can vary from state to state. For homeowners seeking to avoid foreclosure, it can be highly beneficial to learn as much about the foreclosure process as possible.
Notice of Sale and the Foreclosure Process
A notice of sale may provide homeowners with up to 20 days’ notice prior to the sale of the home at a foreclosure auction. The final 20 days before a foreclosure sale may be the last chance homeowners have to work out a foreclosure resolution with their mortgage lenders.
After receiving a notice of sale homeowners may wish to consider these foreclosure defense options:
- Loan Modification – This foreclosure defense involves reaching out to the mortgage lender in order to modify the original terms of the mortgage agreement. This may include a reduction in interest or principal and/or lower monthly mortgage payments.
- Deed in Lieu of Foreclosure – This foreclosure defense option involves negotiating with the mortgage lender to accept the title of the home in exchange for release from mortgage obligations. This can be a smart option when a homeowner has an underwater mortgage and is unable to sell the home.
- Bankruptcy – This foreclosure defense option involves filing a bankruptcy petition with the federal bankruptcy courts. This can stop foreclosure immediately once the automatic stay is in effect. For homeowners to avoid foreclosure after receiving a notice of sale, they may have to pursue chapter 7 bankruptcy since it typically takes less time than a chapter 13 bankruptcy.