Cofounder of InstaLend, a non-bank real estate lender providing loans on single-family and multi-family properties for acquisition and rehab.
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With the moratorium on foreclosures likely coming to an end soon and millions of Americans still out of the workforce and unable to make their rent or mortgage payments, we may be in for a huge uptick in foreclosure activity nationwide. As a property owner, you may find yourself falling behind on payments to your lender and subject to foreclosure action. Should that be the case, it is critical you have a good understanding of the foreclosure process, timelines and costs.
A foreclosure occurs when a mortgage obligation cannot be financially fulfilled and the lender files a lawsuit against the property owner. The process culminates when the lender sells the property at an auction to recoup the money it is owed.
Property owners usually find themselves in foreclosure as a result of nonpayment of the mortgage obligation. Common reasons that force a property owner to default on their payment obligations to a lender are unemployment, extreme debt, relocation and divorce.
Types Of Foreclosures And Their Processes
A foreclosure can take anywhere from a couple of months to several years, depending on state laws and whether it is a judicial or non-judicial foreclosure.
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In a judicial foreclosure, the lender fails to reach a settlement with the property owner and files a lawsuit against the property and its owner. Therefore, judicial foreclosures require the lender to file a complaint, serve the defendant and go through a court motion to eventually get the title (ownership) of the property. This process can last a few months, or it may take several years. States including New York, New Jersey and Illinois have judicial foreclosure laws.
On the other hand, in a non-judicial foreclosure, the lender is not required to file a lawsuit against the property or its owner. Rather, the lender pursues a foreclosure with the help of a third-party trustee, a process that can vary greatly from state to state. Non-judicial foreclosures can be completed in a matter of a few months since they do not require the lender to go through a court process to get the title (ownership) of the property. States such as Alabama and Georgia have non-judicial foreclosure laws.
Once the lender has completed the foreclosure process, the property will be placed for sale at a public auction. Typically, a notice of sale will be published in a newspaper and advertised by a firm of auction organizers.
After Foreclosure: What Happens Next?
The lender is now the owner of the property. Such a property is referred to as REO, or “real estate owned” by a lender. Consequently, the lender may then hire a real estate agent to get the property sold. Being its owner, the lender is now also responsible for the upkeep of the property and must ensure that the property taxes and utility bills are paid.
In addition, the lender must also ensure that the property is kept secured so that no one can break into it. At this point, lenders might seek out experienced and licensed contractors to secure and maintain the property. To secure the property, the contractor must change all locks to the property and seal the windows. Meanwhile, a real estate agent will list the property on the MLS so that the property is visible to all buyers via sites like Zillow and Trulia.
Steps To Take During Foreclosure
Being subject to foreclosure action can be extremely stressful and unpleasant. As a property owner, should you find yourself exposed to foreclosure action, it would be worthwhile to reach out to your lender and transparently share with them your financial difficulties. Do not ignore any communication from your lender and be sure to speak with a foreclosure defense attorney to understand your rights. Understand that since foreclosure action is expensive and time-consuming for your lender as well, they may be willing to settle the matter on reasonable financial terms. Inquire with your lender if they would offer loan modification or a payment plan to resolve the matter. Should none of these avenues prove successful, consider offering a deed in lieu of foreclosure to your lender so you may resolve the matter and eliminate personal liability for any deficiency in loan balance.
With the anticipated rise in foreclosures for 2021, it is imperative that property owners and lenders understand how the process works, the costs and the timelines involved.
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