What is Foreclosure?
Foreclosure is a legal process in which a creditor seeks to take control of real property, evict the homeowner and sell the property to satisfy a past due (defaulted) debt. There are two types of foreclosure, judicial and non-judicial foreclosure. They are each handled in two different ways as more fully explained below. Never ignore Complaints or certified mailings with enclosed notices of foreclosure. They must be addressed within certain time periods to preserve your rights.
How is the bank able to take my property?
Some definitions are helpful here. Real property is a parcel of real estate or land. Personal property is anything not otherwise a parcel of property – such as your car, your boat, your household goods and furnishings. When a car lender wants to take your car, the process is much different than when your bank wants to take your home. With foreclosure, we are talking about real estate transactions only.
When you purchased your home, the bank likely asked you to sign a promissory note and trust deed. The note is your agreement to pay while the trust deed pledged collateral (your home) as security for that agreement to pay. These documents are called “security instruments.” They grant the bank a "lien" or “security interest” in your real property. Possession of these documents allows the lender to initiate legal process against you if you fall behind on your mortgage or otherwise don't pay your obligation when due.
Is it just the bank that can take my property?
No. The most common foreclosing creditor is a mortgage lender that was granted a security interest in the property. However, judgment creditors with judicial liens against a property or other creditors with consensual liens are also able to foreclose. A judgment creditor is someone who sued you in court (judicially) and obtained a judgment. A consensual lien is a party you voluntarily gave a lien to against your property, like a home equity line of credit. A statutory lien is one that arises by virtue of the property itself such as a homeowner's association lien (HOA) or property taxes.
What is the usual timeline for foreclosure?
The timeline for foreclosure varies depending on the creditor but, in the case of a defaulted mortgage, the process typically begins within three to six months of a past due repayment obligation. The rules that govern a creditor's right to foreclose vary from state to state. If you are facing a foreclosure, or the possibility of a foreclosure, it is important to speak with a qualified bankruptcy attorney early in the process to determine your rights and options.
What is the difference between a Judicial Foreclosure and a Non-judicial Foreclosure?
Judicial Foreclosures are brought as lawsuits against the property owner. The foreclosing creditor seeks court approval of their ability to foreclose. A homeowner has the opportunity to contest the foreclosing creditor's ability to take control of the property. If a dispute arises, a trial is held and the court determines if the foreclosure can proceed. If the foreclosing creditor is successful, after obtaining the judgment of foreclosure a local sheriff auctions the property to the highest bidder. Filing a bankruptcy at any time during the judicial foreclosure process but before the sheriff has sold the property will stop the sale.
Non-judicial foreclosures are brought without a lawsuit by a lender that has been granted a voluntary security interest in property by the owner. These types of foreclosure have a “power of sale clause” authorizing the lender to foreclose the property in the event of a default without judicial interference (the filing of a lawsuit). The foreclosure creditors must comply with the terms of the security agreement and the state notice statutes which regulate non-judicial foreclosures.
After the lender issues a notice to the property owner that the obligation is in default, the foreclosing creditor provides a statement to the homeowner by certified mailing of the specific date and time the sale will occur. The time frame a creditor must wait to hold the sale varies from state to state. If no action is taken to prevent the foreclosure, the sale takes place on the date and time stated by the foreclosing creditor and the sale is completed. Filing a bankruptcy prior to the sale occurring will stop the sale and may enable the property owner to retain their property.
A deficiency judgment cannot be obtained through a non-judicial foreclosure but may be pursued when other foreclosure methods are used.
If you have been served with a Complaint for foreclosure or a Trustee's Notice of Sale, contact our office and speak with one of our qualified attorneys right away to learn your rights and potential remedies to retain your home.