Judges gavel next to a small toy house resting atop a set of block that spell the word foreclosure on top of a wooden desk

The Truth About Real Estate: Understanding Foreclosures In 2020

Foreclosure can be one of the most emotionally, and often physically, difficult experiences a person can have. If a borrower fails to pay the mortgage for two or more consecutive months, the lender can start the foreclosure process to send the property to foreclosure auction before becoming an REO.

What Does Foreclosure Mean In Real Estate

Foreclosure is the legal process by which a property owner loses ownership of their home or property, generally to a lender or city government, when they fall upon financial hardship and fail to pay agreed-upon taxes, payments, or charges.

Typical factors for foreclosures consist of:

  • Default on loan repayment – The most typical manner in which homes are foreclosed on is through default on home mortgage loans – when the borrower fails to keep up with their mortgage payment;
  • Overdue taxes – If a homeowner owes back-due home taxes to the State, the property can be subject to tax foreclosure and taken by the city government, whether single-family or otherwise;
  • Homeowners Association (HOA) fees – Many of the more than 57 million Americans who live in HOAs fail to acknowledge the power that these organizations wield. In approximately half of the states in the U.S., HOAs are permitted non-judicial foreclosures if owners lapse on their fees. In many of these states, homeowners are not allowed the right to a hearing or to confront their HOA board, nor are they usually provided with any of the typical defenses afforded people to protect themselves versus financial institutions in situations of default and foreclosure; and
  • Overdue contractors’ expenses – In June 2010, subcontractors submitted a suit versus a church in Florence, Ohio, to foreclose on the 1,400-seat praise center for unpaid bills.

Why Do Foreclosures Happen To Good People

The majority of home mortgage agreements consist of an acceleration provision, which provides the lender power to demand accelerated repayment if particular agreed-upon terms are broken.

If the customer falls behind on monthly payments or fails to alert the lender of a real estate title transfer, for instance, the lending institution can require that the whole financial obligation be paid right away.

Understanding The Foreclosure Process In The United States

Delaying a Foreclosure Is Possible, But Not Guaranteed

If there is no acceleration provision and terms have been violated, the loan provider might still have the ability to submit fit against the debtor to recover the financial obligation.

In order to avoid foreclosure, the borrower may object to foreclosure in court by challenging the credibility of the financial obligation. If repossession is imminent, the debtor needs to look for a temporary court ordered restrianing order.

If the mortgage lender feels that foreclosing upon your home is no longer in their most sufficient and best interests (such as if the home equity is less than its outstanding home mortgage), they might renegotiate with the borrower by lowering the rates of interest or premium.

Although several federal government incentives promote renegotiation to avoid foreclosure, most lenders are too careful of re-default to consider it a viable alternative solution.

If attempts for foreclosure prevention continue to fail, the foreclosure will proceed in one of three ways:

  • Judicial foreclosure – Typical in Florida, New York, Ohio, and Pennsylvania, the mortgager files a claim against the customer to force the residential or commercial property sale. Resulting funds first satisfy the home mortgage, than any other lien-holders. If any funds are leftover, they will go to the customer. Judicial foreclosures are available in every State;
  • Non-judicial foreclosure – Typical in California and Texas, the mortgager requires a residential or commercial property sale without any court guidance. Mortgage holders do not need to file a claim if a “power of sale” clause stipulation is included in the mortgaged property. As the court system has been bypassed, non-judicial foreclosures are much faster and cheaper than judicial foreclosures; or
  • Strict foreclosure – Offered in Connecticut, New Hampshire, and Vermont, a match is brought against the mortgager who is bought to pay the financial obligation to the mortgage-holder within a specific amount of time. If the mortgager stops working to pay, the mortgage holder gains the home’s title, but they are under no legal responsibility to re-sell the property.
The Truth About Real Estate: Understanding Foreclosures In 2020 -
*Information courtesy of FDIC.gov

Foreclosure Happens In Six Stages

The length of time it takes to complete a home foreclosure can vary tremendously depending on the resident/ homeowner/ mortgagee situation.

Regardless of how long it takes to foreclose on a property, a six-step process happens over an extended time. Each step leads the mortgagee closer and closer to having the property foreclosed.

The Six Stages Of Property Foreclosure

Stage 1: Payment Default

A payment default occurs when a borrower has missed out on at least one home loan payment. The lending institution will send a missed out on payment notification showing that it has actually not yet received that month’s payment.

Usually, home loan payments are due on the first day of each month, and lots of lenders offer a grace period until the 15th of the month. After that, the lender might charge a late payment fee and send the missed payment notification.

After two payments are missed out on, the lending institution might send out a demand letter. This is more major than a missed payment notice. However, at this point, the lender might still be ready to work with the debtor to make arrangements for capturing up on payments. The debtor would typically have to remit the late payments within 30 days of receiving the letter.

Stage 2: Notice of Default (NOD)

A notice of default is sent after 90 days of missed out on payments. At this point, your property would be considered to be in pre-foreclosure, a state in which you are heading in the direction of foreclosure, but the banks/ financial institution providing the mortgage will typically still be willing to work with you. If some sort of arrangement can be made at this point it is generally a better situation for everyone involved.

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In some states, the notification is placed prominently on the home. The loan will be turned over to the loan provider’s foreclosure department of housing in the same county where the home resides. The borrower is informed that the notice will be taped.

The lender will generally give the customer another 90 days to settle the payments and restore the loan. This is referred to as the “reinstatement duration.”.

Stage 3: Notice of Trustee’s Sale

If payment has not been made to bring the loan current within the 90 days following the notice of default, then a trustee sale notification will be recorded in the county where the home is located.

The loan provider must likewise usually release notice in the regional paper for three weeks suggesting that the residential or commercial property will be offered at public auction. In addition to a legal description of the property, its address, and when and where the sale will occur, all owners’ names will be printed in the local paper along with the notification.

Stage 4: Trustee’s Sale

The residential or commercial property is placed for public auction and awarded to the highest bidder who meets all of the requirements. The loan provider (or firm representing the lending institution) will compute an opening bid based on the exceptional loan’s worth and any liens, unsettled taxes, and expenses associated with the sale.

Big red auction sign posted in front of a brick real estate foreclosure auction houseOnce the highest bidder has been verified, and the sale is complete, a deed of trust will be supplied to the winning bidder. The residential or commercial property is then owned by the purchaser, who is entitled to possession of the property and its real fixtures immediately.

Stage 5: Real Estate Owned (REO)

Suppose the residential or commercial property is not sold during the general public auction. In that case, the loan servicer will become the owner and attempt to offer the property through a broker or with the support of a real estate owned (REO) property manager.

These homes are typically described as “bank-owned,” and the lender might get rid of a few of the liens and other costs to make the home more appealing and make the home affordable.

Stage 6: Eviction

The debtor can typically remain in the house until it has sold either through a public auction or later as an REO home. An eviction notice is then sent out, demanding immediately that any occupants leave the properties.

In Conclusion

A home is considered in foreclosure when the mortgage is defaulted on. The lending institution is currently attempting to recoup those funds by requiring further repayment of the loan, or forceable transfer of the property title to the lender via the foreclosure process.

After purchasing the foreclosed property, the new homeowner can decide whether to provide the current occupant or residents with sufficient time to remove any personal valuables or if they are to evacuate immediately. It is pretty commonplace for the regional sheriff to check out the home and remove any remaining persons or belongings. The latter are positioned in storage and can be obtained later by the resident for a fee.

A Property has foreclosed once the lending institution has completed the six-step foreclosure process. Once a property has foreclosed, the lender will attempt to auction the property to recoup lost monies. If this foreclosure auction fails, the property title reverts to the lender and is then considered an REO or Real Estate Owned (by a bank).

In summary, delinquent taxes, home loan payments, and HOA charges can result in residential or commercial property foreclosure. The type of foreclosure determines the process by which this can occur and differs by area and circumstance.

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