First Missed Payment: Lender will typically contact borrower by letter or phone.
Second Missed Payment: Lender attempts to contact a borrower to discuss missed payments.
Third Missed Payment: After the third payment is missed, lender sends out “Demand Letter” or “Notice to Accelerate” letter. Most banks will allow 30 days to bring a mortgage current or barrower’s attempt of some type of payment arrangement or reffer to foreclosure assistance resources.
Fourth Missed Payment: Borrower is nearing the end of time allowed in the “Demand” or “Notice to Accelerate” letter. If payment is not made or borrower did not work out an arrangement, case is referred to lender’s attorney. All attorney fees become part of a delinquency amount.
Sheriff’s or Public Trustee’s Sale: This is the actual day of foreclosure. Home owner may be notified of the date by mail and the sale may be advertised in a local paper. The time between the” Demand” or “Notice to Accelerate” letter and the actual sale varies by state. In some states it can be as quick as 2-3 months. Borrower has until the date of sale to make arrangements with a lender, or pay the total amount owed to stop foreclosure.
Redemption Period: After the sale date borrower may enter a redemption period. Redemption time frame is given on the same notice that state uses for your Sheriff’s or Public Trustee’s Sale.
Judicial VS Power of sale Foreclosure
All 50 states allow Judicial Sale, while only 29 allow “Power of Sale”. Majority of lenders will include “Power of Sale” clause into agreements if allowed by the state law. Power of Sale is faster than the judicial foreclosure.
Judicial Sale Foreclosure:
- The mortgage lender will file suit with the local court system.
- Borrower will receive a letter from the court demanding payment.
- Typical 30 day period is allowed for a response and a payment to avoid foreclosure.
- At the end of the 30-day period, a judgment is entered and the lender requests sale of the property by auction.
- The auction is carried out by the sheriff’s office, usually a few months after the judgment.
- Once the property is sold, borrower is served with an eviction notice by the sheriff’s office, and must vacate the home immediately.
Power of Sale Foreclosure:
- The mortgage lender will serve borrower with papers demanding payment.
- After an established waiting period, a new deed of trust is drafted. This document temporarily conveys the property to a trustee.
- The trustee will sell the house at public auction for the lender.
- Many times, power of sale foreclosures are subject to judicial review to ensure legally of proceedings.
- Typically lender is required to post a public notice of sale for the auction.
Both types of foreclosure require that any other involved parties be notified of the proceedings. For instance, if you took out another loan against the house with a third party, that lender must be contacted and its loan amount must be paid from the auction’s proceeds. If the third-party lender isn’t paid, it can apply the mortgage to the new property owner. Many times, the lender will actually buy the property back and attempt to sell it through the real estate market at a later date.
In some cases if the sale of the property doesn’t satisfy the amount of the loan, deficiency judgments are made against the borrower. The entire amount of deficiency may be required, although some states only require the difference between the fair value of the property and the loan amount be paid.
Only Connecticut and Vermont allow almost obsolete procedure called strict foreclosure. In these cases, once judgment is made on the lawsuit, the property is automatically assumed by the mortgage holder.
Related posts:
- How to Write a Hardship Letter
- Department of Treasury Home Affordable Modification
- Georgia Foreclosure Assistance
- California Foreclosure Assistance
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