A Foreclosure is defined as “the process of taking possession of a mortgaged
property as a result of the mortgagor’s failure to keep up mortgage payments.”
To simplify, it’s the act of a home being taken away from you due to your
failure of paying the mortgage payments.
When someone buys a home, they sign a mortgage or deed of
trust. This document puts a lien on the property, making the loan a secured
loan. When the lender loans you money without any type of collateral (credit
card debt, etc.) they can take you to court for failure of payment.
What types of
foreclosures are there?
There are two different types of foreclosures in the US –
Judicial or Non-judicial. In a Judicial Foreclosure, the lender will seek to
foreclosure by filing a civil lawsuit against the borrower. It is handled
through the local court system, where the court appoints a referee to conduct
the foreclosure auction on the courthouse steps. The lender will record a lis
pendens with the country clerk, which becomes a lien on the property and gives
notice to the pending foreclosure auction. The court will grant judgment
permitting the lender to conduct the foreclosure auction. This process takes up
to 4-8 months to complete.
The second type of foreclosure is a non-judicial
foreclosure. It is followed by the deed of trust states. A deed of trust is an
interest in real property to a third- party to hold as security for repayment
of a debt. The trustee has the authority to initiate foreclosure proceedings by
virtue of power of sales. The trustee will record a notice of default with the
county clerk and gives notice of the impending foreclosure. It also grants the
borrower a period of time in which to object the lenders claim o pay what he
owes. The borrower may not stop the foreclosure after the expiration of this
time period. After the expiration of
this time period, the trustee will record a Notice of Trustee’s Sale with the
county clerk, which will establish the date, time, and place of the foreclosure
auction. It can take up to 12 months to complete the foreclosure, depending on
the state.
What is the
Foreclosure process?
There are five stages of the foreclosure process.
Stage 1: Missed Payments – Foreclosure starts when a
borrower fails to make timey mortgage payments. This can be due to financial
hardships, such as unemployment, divorce, death, or medical related issues.
Other times, borrowers decide to stop paying because the property mortgage
exceeds the value of the home, or they are tired of managing the property.
Stage 2: Public Notice – After about 3-6 months of missed
payments, the lender makes a public notice with the County Recorder’s Office,
which indicates that the borrower has defaulted on their mortgage. This is also
known as a Notice of Default. This official notice allows the borrower to be
aware that they are in danger of losing all legal rights to their property and
they may be evicted from the premises.
Stage 3: Pre-Foreclosure – After you receive Notice of
Default the borrower will enter the “pre-foreclosure” phase, which takes
anywhere from 30-120 days. The borrower can try to work out an arrangement with
the lender via a short sale or pay the outstanding amount owed on the property.
If the borrower decides to pay off the default during this phase, foreclosure
ends and the borrower avoids home eviction and sail. If it is not paid, the
foreclosure continues.
Stage 4: Auction – If the default is not remedied, the
lender sets a date for the home to be sold at a foreclosure auction. It is
recorded with the County Recorder’s Office that is posted on the property.
Auctions are sometimes held at the courthouse, or the property itself. In some
states, the borrower has the right of redemption, where he can come up with the
outstanding cash and stop the foreclosure process up the moment the home will
be auctioned off. At the auction, the home is sold to the highest cash bidder.
Many lenders make agreements with the borrower (called the “deed in lieu of
foreclosure) to take the property back because of the limited amount of buyers
who can pay cash only for the property. Sometimes, the bank will buy the
property back at the auction.
Stage 5: Post-Foreclosure – If a third party does not
purchase the property at the foreclosure auction, the lender will take
ownership of the property and it becomes known as a bank-owned property or REO,
Real Estate Owned. Bank-owned properties are then listed with a local real
estate agent for sale on the market, or some lenders prefer to sell their
properties at a liquidation auction.
What are your rights
as a tenant during a foreclosure?
If there are tenants in the house that was foreclosed on,
the new owner has to honor the existing lease. When the tenants have a
month-to-month lease the new owner can evict the tenants or former
owner/landlord. You can offer the existing tenants a new lease or rental
agreement, or begin the eviction process.
Your Local San Diego Real Estate Expert,
