If you’ve just received foreclosure papers, you may be wondering what happens next. Your first step should be to take a deep breath. Millions of people get these notices and the bank does not want to take your home. You also have rights while you’re in the foreclosure process to protect yourself from losing your home.
Foreclosures are very expensive for the mortgage company, so your lender is already prepared to help you avoid going through the process, and that is what you’ll discover in this post. But first, let’s look at what a foreclosure is.
A foreclosure is where a person, company or organization has a mortgage and defaults on multiple payments. Once this happens the lender will begin the process of taking ownership of the property, and that is called foreclosure.
The first step in the foreclosure process is called pre-foreclosure which starts with a letter sent from the lender to the mortgage taker and ends with an auction or sale of the property, or a resolution where the mortgage taker and lender cut a deal.
Now that you know what a foreclosure is, let’s look at the types of foreclosures, how you can avoid going into foreclosure, and some FAQs to alleviate any concerns you may have.
Pre- Foreclosure | Judicial Foreclosure | Power of Sale (Nonjudicial) Foreclosure | Strict Foreclosure | REO Foreclosure | Expedited Foreclosure | |
Sale occurs under judicial supervision | X | X | X | X | ||
Doesn’t involve the judicial system | X | X | X | |||
Property is sold at auction | X | X | X | |||
Can stop the foreclosure by repaying what is owed up to the moment of sale | X | X | X | X | ||
Most common | X | |||||
Use when there is a power of sale clause | X | |||||
Use when the property is considered legally abandoned | X | |||||
Use when what is owed exceeds the value of the property | X | |||||
Allowed in every state | X | X | X | X | ||
Only allowed in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming and Washington, D.C. | X | |||||
Only allowed in Connecticut and Vermont | X | |||||
Can take 12 months or longer | X | X | ||||
Title to the property transfers to the lender without requiring a sale | X |
Each type of foreclosure has ways to prevent you from losing your home. And each one has a few nuances that make it unique. But no foreclosure is final until the auction happens or the property is sold. And now that you know the types of foreclosures, let’s go through the process together so you can then learn how to avoid a full foreclosure.
Foreclosure is normally done in a five step process over a 12+ month period.
Note: If the foreclosure is non-judicial, the process is started with filing paperwork with the necessary court and that’s it. Judicial foreclosures will require court approval for each step and the sale.
And you have rights if your lender is foreclosing on you. These rights protect you by providing you with options to stop the foreclosure process and continue living in the house you love.
Knowing your rights can help you navigate the foreclosure process.
A breach letter must include:
Without this letter and the above details, your lender has to restart the process.
If it’s a judicial foreclosure, you’ll get a letter letting you know that a foreclosure has begun. If it’s a nonjudicial foreclosure, you may receive two notices: Notice of default (NOD) and Notice of sale (NOS).
Without this letter(s), the foreclosure process restarts.
You can stop your foreclosure by making a lump-sum payment and get up to date on your loan, including any fees.
If your lender refuses to allow you to reinstate, you can ask a court to allow the reinstatement.
This allows you to discuss options like a loan modification, short sale, repayment plan, or deed in lieu of foreclosure with your lender instead of having them foreclose.
No matter where you live, you have the right to challenge the foreclosure in court. In a judicial foreclosure, you can join in the existing lawsuit. If it’s a nonjudicial foreclosure, you must file your own lawsuit.
If your property sells for more than you owe, you are entitled to the surplus. Depending on your state, if the sale does not cover your debt, you may get a deficiency judgment.
The Fair Debt Collection Practices Act (FDCPA) applies to judicial foreclosures because creditors can get deficiency judgments.
Your lender must send you a FDCPA validation notice that includes:
Remember that you have the right to challenge a foreclosure if you think your lender made a mistake or has violated the law.
If you’re facing a foreclosure, you aren’t alone, and there are many different ways to stop a foreclosure in its tracks. Explore the different options below:
Now you know what a foreclosure is, what your rights are, and how to avoid one, here are some common questions about foreclosures.
Depending on how the foreclosure takes place, foreclosure fees are paid by different parties. If the loan is paid off, you are responsible for paying the fees to the lender. If the property is sold at an auction, the bidder is responsible for paying the foreclosure fees. If the lender is the buyer of the property at an auction, the lender then is responsible for the fees.
Yes, a Chapter 13 bankruptcy will stop a foreclosure and will help you to set up a repayment plan to get back on track. As long as you continue to make on-time payments during your Chapter 13 bankruptcy, you can permanently delay foreclosure.
Yes, there are special protections for military personnel on active duty. A lender cannot foreclose on a house owned by military personnel on active duty unless a court gives permission.
When you get a pre-foreclosure letter, you should contact the loss mitigation department at your lender right away. You will need to provide the loss mitigation department with your financial information and they will determine which alternatives to foreclosure that you qualify for. The sooner you start working with them, the more options you may have.
Now that you know the ins and outs of how foreclosures work and your rights, you can take the right measures to protect your home against one.
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