In that initial document, you might notice that the foreclosing party is something like “U.S. Bank National Association, as trustee, on behalf of the holders of the Bear Stearns Asset-Backed Securities I Trust 2009-AC6.” If you see this kind of language in your foreclosure paperwork, your home loan is part of a residential mortgage-backed security.
But what is a mortgage-backed security? In the most basic terms, a mortgage-backed security is a type of investment that’s secured by home loans.
When you take out a loan to buy a home, the lender provides you with money to make the purchase in exchange for your promise to repay the loan plus interest. This promise, along with the terms for repayment, is contained in the promissory note. As part of the transaction, you'll also pledge the home as collateral for the loan. The mortgage (or deed of trust) is the document that contains this pledge.
In a process called "securitization," multiple loans, including both the promissory note and the mortgage or deed of trust, with similar characteristics are pooled, often held in a trust, and then sold in the secondary market. The purchaser (or “investor”) gets the right to receive a portion of the future income stream that comes from the borrowers’ payments on the mortgage loans.
The key parties in the securitization process are:
A "pooling and servicing agreement" (PSA) is the main contract that governs the relationship between the parties in the securitization process and controls what can and can't be done with a securitized trust. The PSA lays out the rights and obligations of specific parties over a pool (group) of securitized mortgage loans.
The PSA will say, among other things:
For instance, the PSA might describe the servicer's compensation. Often, a servicer is entitled to retain the late charges, nonsufficient funds (NSF) fees, reconveyance fees, assumption fees, and other fees it collects.
When a loan servicer denies a request for a loan modification or another loss mitigation option based on "investor guidelines," the servicer might be referring to the PSA. The PSA likely carefully describes the loan servicer's responsibilities for collecting payments, handling loss mitigation (including the authority to modify loans), and foreclosure.
If you think you were wrongfully denied a loss mitigation option, ask your foreclosure lawyer to get a copy of the PSA and review it for these guidelines. Your lawyer should also know how to read loan servicing communication logs and payment histories. These documents contain information about how and when the servicer reviewed your loss mitigation application.
If the securitization is public, the PSA will be filed with the Securities and Exchange Commission (SEC). You can usually find a copy on EDGAR (Electronic Data Gathering, Analysis, and Retrieval) at www.sec.gov.
Again, the foreclosure might be filed in the name of the securitized trust. For example, say you're facing a judicial foreclosure, and the plaintiff in the lawsuit is "Ameriquest Mortgage Securities Inc. Asset-Backed Pass-Through Certificates, Series 2004-R10." One way to find the PSA is to take the following steps:
However, not all trusts are listed with the SEC, so you might be unable to find the PSA related to your loan using this method. In that case, you might try making a qualified written request to get a copy of the PSA. Or your attorney may request a copy of the PSA as part of discovery if you fight the foreclosure in court.
PSAs are very complicated and can be hundreds of pages long. If your loan has been securitized and you're facing a foreclosure or were denied a loan modification, talk to a lawyer to get information about how the PSA might apply to your case.
With securitization, mortgage investors can better understand the price and risk of their investment because approved credit rating agencies classify the various tranches according to their relative risks. (Mortgage-backed securities are normally set up in multiple “tranches” based on the riskiness of the investment. A "tranche" is a portion of a pooled collection of securities that’s categorized by risk or other characteristics so that it’s marketable to different investors.)
High-rated tranches are made up of less-risky loans. Low-rated tranches, which are generally made up of subprime loans, carry higher risk. Standardized underwriting requirements for different kinds of loans help agencies assign ratings.
Individual mortgages, on the other hand, are often difficult for investors to understand and price. And, when investing in mortgage-backed securities, an investor is insulated from the risk of an individual mortgage default.
Any type of mortgage loan can be securitized. During the housing boom of the early 2000s, subprime loans were particularly popular for securitization because they generated large returns for investors due to their high-risk nature.
The subsequent foreclosure crisis was due in significant part to residential mortgage-backed securities that were filled with subprime loans, which eventually had massive numbers of defaults. Droves of loan defaults in low-rated tranches, as well as in more highly-rated tranches, led to large losses for investors.
The securitization process is complicated. If you’re facing a foreclosure and your loan has been securitized, consider talking to an attorney to help you understand the intricacies and issues surrounding securitization as it pertains to your individual situation.
A foreclosure attorney can also explain different options that might be available to prevent a foreclosure and can tell you if you have any defenses to the foreclosure, such as the foreclosing party doesn't have standing.
]]>In a judicial foreclosure, the lender (the plaintiff) prepares three documents to begin a foreclosure lawsuit: a complaint, a summons, and a notice of lis pendens. (On the other hand, a nonjudicial foreclosure doesn't go through state court. So none of these documents are involved in the process.)
The "complaint," sometimes called a "petition," for foreclosure lays out the claims of the foreclosure suit. It will describe:
The complaint will also state what the lender seeks, called the “relief,” in a judgment from the court, namely that it wants to foreclose. For example, the complaint will ask for the right to sell the property and apply the sale proceeds to the mortgage debt.
The complaint might also ask for a deficiency judgment if the proceeds at the foreclosure sale do not fully cover the total debt amount.
In a judicial foreclosure, a summons is issued for each defendant named in the foreclosure lawsuit. Typical defendants in a foreclosure lawsuit are:
The summons informs the defendant about the right to file an answer to the suit and states how many days the defendant has to respond with an answer, usually 20 to 30. If you want to answer the complaint's claims and fight the foreclosure, you must file your answer within this time frame.
“Lis pendens” is Latin for “suit pending.” When a lender starts a foreclosure, a notice of lis pendens is recorded in the county land records. The purpose of the notice of lis pendens is to inform the public that a lawsuit involving the property is pending.
The notice of lis pendens is typically a one- or two-page document that includes the legal description of the property and states that a foreclosure has been started.
If you decide to file an answer to the complaint, you need to address all of its allegations. For each numbered paragraph in the complaint, you should admit, deny, or say you don’t have sufficient information to admit or deny (and therefore you deny) the allegations contained in that particular paragraph. You may also ask that the lender prove its claims, like how much it says you owe and the fees it says are due. Be aware that if you admit an allegation, the lender doesn’t have to prove it.
You’ll also need to raise any defenses and affirmative defenses in your answer, such as the lender doesn’t have standing (the right to foreclose), as well as any counterclaims, like the servicer violated federal mortgage servicing laws when you applied for a loan modification, if applicable.
In addition to answering the allegations, your answer may include defenses and affirmative defenses.
If you decide to answer the foreclosure complaint without an attorney’s assistance and represent yourself in court proceedings, you’ll need to devote a substantial amount of time to conducting research, getting your paperwork in order, and preparing your arguments. Because the law is complicated and court procedures vary quite a bit, it’s a good idea to hire a lawyer if possible.
If you can’t afford a lawyer, you may contact a legal services program in your area to determine if you qualify for free legal help. It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about alternatives to foreclosure.
]]>But if you fail to make a payment, your mortgage loan becomes delinquent. The mortgage loan is considered delinquent when you don’t make the scheduled payment on or before the due date. If you don’t cure the mortgage delinquency—by getting current on the overdue amount—the lender may eventually begin a foreclosure.
Or, if you can’t bring your delinquent home loan current, your lender might offer you a way to prevent a foreclosure, like a repayment plan or loan modification.
Federal law says that a mortgage becomes delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and escrow (if applicable) becomes due and is unpaid. The loan remains delinquent until such time as no periodic payment is due and unpaid. (12 C.F.R. § 1024.31.)
Once the mortgage loan becomes delinquent, the lender can add a late fee to the account after each missed payment (after the grace period passes, if one applies). But under federal law, in most cases, a mortgage servicer is prohibited from starting a judicial foreclosure or nonjudicial foreclosure until the borrower's mortgage loan obligation is more than 120 days delinquent. (12 C.F.R. § 1024.41.)
The purpose of the 120-day waiting period is to give the borrower time to work with the servicer and, hopefully, avoid a foreclosure. If you submit a loss mitigation application for a foreclosure alternative during these 120 days, the foreclosure start date might get pushed out even further.
A mortgage becomes delinquent because the borrower fails to make the required payments. Typically, a mortgage delinquency happens after the borrower loses their job, following a divorce or separation, or after an illness.
In a “rolling delinquency,” a borrower who is one or two months delinquent subsequently makes a full payment of principal, interest, taxes, and insurance (PITI) each month but doesn’t get caught up on the past-due amounts.
The servicer applies each payment to the oldest outstanding periodic payment. So, the borrower’s payment advances the date when the delinquency began.
You might think your loan servicer can't begin a foreclosure during a rolling delinquency because you aren’t over 120 days delinquent. But that’s not the case. Servicers have other ways to deal with situations in which a rolling delinquency might prevent the beginning of a foreclosure.
For instance, the servicer could choose to accelerate the loan. Once the loan is accelerated, you must repay the full loan amount (not just the overdue amount) by a specific deadline. If you fail to pay off the debt by the deadline, you'll be one day delinquent on the day after it was due. Once you're 120 days delinquent, the servicer can initiate a foreclosure.
If you’re consistently one or two payments behind on your mortgage and can’t catch up, you have options. The quickest way to resolve the mortgage delinquency is to double or triple up on your payment for one month, including any late fees.
If you can't afford to pay that much, another option for getting current on the loan is a repayment plan.
With a repayment plan, you work out an agreement with the servicer to make up the delinquent mortgage payments over a specified period, usually a couple or several months. During the repayment period, a portion of the past-due amount is added to each of your regular monthly mortgage payments.
If you make all the required payments, you’ll be current on the loan once the repayment period ends.
If you want to use the repayment plan option, here's what to do.
1. Gather your financial information. To arrange a repayment plan, you'll need to contact your loan servicer. But first, gather up basic information about your finances, like:
Have this kind of information available when you call your servicer.
2. Contact your loan servicer. Call your servicer and say you're interested in a repayment plan and would like to find out if you're eligible. Be prepared to explain why you need help bringing your loan current, including why you fell behind and can't catch up.
Your servicer will walk you through the next steps to find out if you qualify and help you get back on track with your loan payments. A servicer can usually approve a short-term repayment plan on the spot without getting the lender's approval.
3. Sign the repayment agreement. After you and the servicer figure out a repayment plan, sign the agreement. The agreement will describe how you will repay the past-due amount, including the length of the repayment period and the specific terms.
After making all the payments, you’ll be current on your loan.
In a "refinance," you pay off an existing mortgage loan by getting a new one. How much equity you have in your home (the property’s value less what you owe on the existing mortgage loan) and your credit scores are factors in whether you’ll qualify for a refinance loan. It’s much easier to refinance your mortgage if your account isn’t delinquent.
You might be able to refinance your loan even if your mortgage is delinquent, but the odds aren’t good. Contact your current lender to find out if they have any available programs. Your current lender might be more willing to refinance a delinquent mortgage than other lenders.
However, you need to act before you fall far behind in payments. With each missed payment, your credit takes a hit. Because your credit scores affect whether you can refinance and the interest rate you’ll get, you should refinance a delinquent mortgage as soon as possible.
For the best chance of approval, you’ll need to refinance before you miss any payments. Once you’re in foreclosure, you most likely won’t qualify. However, even if you’re desperate to stop a foreclosure, you should avoid foreclosure bailout loans.
Making sure your payments are affordable when you get the mortgage loan is the best way to avoid a mortgage delinquency. Also, make your payments on time if you can. Set up automatic payments if you think you’ll forget to pay your mortgage on time.
You might be able to avoid a prolonged mortgage delinquency even if you’ve missed a mortgage payment—or think you soon will. You might qualify for a repayment plan, as discussed above, or another option. Be sure to keep the channels of communication with your servicer open.
Homeowners sometimes choose to avoid such stress by refusing to talk to the servicer. But ignoring a mortgage delinquency isn’t a good idea.
A homeowner should always pay attention to calls, mail, or other attempted communication from their mortgage servicer. In fact, homeowners should be proactive in contacting their servicer in addition to being responsive.
Failing to establish and maintain communication with the mortgage servicer might result in missed information, lack of awareness about dates and deadlines, and, most importantly, might cause the homeowner to lose opportunities to cure a mortgage delinquency.
Homeowners should contact their servicer as early as possible in a mortgage delinquency, preferably before missing their first payment or immediately after any missed payment. Don’t wait for the servicer to contact you.
Being proactive gives you the earliest, most affordable shot at working something out with the servicer. Costs will begin adding up after the loan becomes delinquent, especially once the servicer officially starts a foreclosure.
An active, involved homeowner can motivate the servicer to work harder to find a solution. Otherwise, you risk becoming an anonymous part of a standardized collection and foreclosure process.
Making your monthly payments on time is the best way to avoid mortgage delinquency. But financial obstacles and other issues often cause borrowers to fall behind in payments. Many homeowners face financial difficulties at some point during their life. Again, unemployment, medical problems, and divorce are just a few scenarios that can cause a homeowner to miss mortgage payments.
After you miss a payment, federal mortgage servicing rules, in most cases, require the servicer to contact you to discuss ways to cure the delinquency.
Under federal law, the servicer must personally contact you (or make a good faith effort to try to contact you) no later than 36 days after your payment is due and inform you about the availability of loss mitigation options, if appropriate.
In addition, no later than 45 days after you're late on the payment, the servicer must mail you information about the mortgage workout options that might be available to you and how to apply for those options.
If you don’t qualify for a repayment plan, you can apply for another option, like a temporary forbearance or modification. Or you might consider selling your home in a short sale.
To apply for any of these options, you’ll most likely need to submit documents about your income and other financial information, such as bank statements, along with a loss mitigation application to your servicer.
Call your servicer if you need help with the loss mitigation application or have questions about it. Under a mortgage servicing rule called the “continuity of contact” rule, the servicer must assign a single person or a team of personnel by the 45th day after the missed payment to help you resolve a mortgage delinquency.
Once you’ve submitted an application to resolve the mortgage delinquency, so long as it is at least 45 days before a foreclosure sale, the servicer has five days to let you know if the application is complete or if it needs further documentation.
If the servicer needs additional items, it must give you a reasonable amount of time to submit those items to complete the application. Once you’ve submitted a complete application, the servicer must then evaluate you for all available alternatives to foreclosure.
The servicer can’t move forward with a foreclosure until:
Under state and federal laws, the servicer must contact you at various stages after the account becomes delinquent and during the foreclosure process. If you refuse to answer phone calls, read the mail, or accept other efforts to communicate, you might not get this vital information.
Deadlines for opportunities to avoid foreclosure, like the opportunity to participate in mediation or to submit an application for a loan modification, might be missed. The possibility of catching up might fade as attorneys’ fees and court costs add up.
Even if foreclosure is inevitable, you might be surprised by events if you aren’t aware of dates and procedures. For these reasons, homeowners who want to keep their home should respond to communications from the mortgage servicer and contact the servicer proactively.
If you need help working with your loan servicer to resolve a mortgage delinquency, consider hiring a lawyer to assist you with the process. An attorney can also tell you about federal and state laws that protect homeowners in the foreclosure process and defend you against a foreclosure.
To get free assistance with completing a loss mitigation application or to learn more about different foreclosure alternatives, consider talking to a HUD-approved housing counselor.
You should not, however, hire a foreclosure rescue company to assist you.
]]>These GSEs are privately owned, but they get support from the federal government. Fannie Mae and Freddie Mac play a significant role in the mortgage market by owning or guaranteeing many home loans in the United States.
And if you have a Fannie Mae or Freddie Mac loan and you're facing a foreclosure, you get access to specific mortgage-relief programs and foreclosure avoidance options.
Fannie Mae and Freddie Mac are nicknames for the GSEs, derived from their full names. Fannie Mae comes from Federal National Mortgage Association (FNMA) and Freddie Mac from Federal Home Loan Mortgage Corporation (FHLMC).
Fannie Mae and Freddie Mac provide stable funding for the housing and mortgage markets, but they don’t make loans directly to home buyers. They also don’t service mortgage loans.
Instead, the GSEs support the nation’s housing finance system by purchasing or guaranteeing home mortgages through the secondary mortgage market. Fannie Mae and Freddie Mac compete with each other as investors on the secondary mortgage market.
One difference between Fannie Mae and Freddie Mac is their original purpose. Congress created Fannie Mae in 1938 to provide affordable housing after the Great Depression. Banks didn’t have the funds to make mortgage loans, so Fannie Mae helped banks finance long-term, fixed-rate mortgages.
In 1968, the government privatized Fannie Mae. In 1970, Congress created Freddie Mac to compete with Fannie Mae’s monopoly and further expand the secondary mortgage market.
Some other differences are that Fannie Mae and Freddie Mac have different loan programs and lending guidelines for borrowers. They also have various options for borrowers having trouble making their mortgage payments. Though, their loss mitigation options tend to be similar.
Also, Fannie Mae and Freddie Mac buy mortgages from different sources. Fannie Mae purchases loans from larger, commercial banks and lenders. Freddie Mac gets them from smaller banks and lenders.
Fannie Mae and Freddie Mac are similar in that they support the mortgage in the U.S. by purchasing mortgage loans from lenders that originate them.
And the Federal Housing Finance Agency (FHFA) regulates both Fannie Mae and Freddie Mac.
After purchasing loans from banks and mortgage companies, the GSEs either hold the mortgages in their portfolios or aggregate (pool) them into debt securities called mortgage-backed securities, which are then sold to investors. This process is called “securitization.”
Fannie Mae and Freddie Mac often guarantee payment of principal and interest on their mortgage-backed securities in exchange for a fee to reduce the investors' risk. By guaranteeing the loan, the GSEs agree to pay the investor even if the borrower defaults.
So, investors don’t have to worry about credit risk, making Fannie-backed and Freddie-backed mortgages a particularly appealing investment. Also, because of their major role in the mortgage market and their affiliation with the government, investors generally assume the government implicitly guarantees Fannie Mae and Freddie Mac loans (meaning, the government will bail out Fannie Mae and Freddie Mac if necessary.)
In fact, when the mortgage crisis began in 2007, Fannie Mae and Freddie Mac faced major losses. And because they had such a large share of owned and guaranteed loans in the country, the FHFA determined that the GSEs would soon become insolvent. So, in 2008, the FHFA put Fannie Mae and Freddie Mac into conservatorship. Fannie Mae and Freddie Mac received a bailout of nearly $190 billion from the government, which they've paid back. But they're still in conservatorship.
Because Fannie Mae and Freddie Mac continually purchase mortgages from banks and mortgage companies, lenders have a steady cash source to keep making loans to new borrowers. Lenders are also incentivized to offer non-risky loan products, like long-term, fixed-rate mortgages, because they know Fannie Mae and Freddie Mac will probably buy them.
If you have a Fannie Mae or Freddie Mac loan, are having trouble paying your mortgage, or are facing a foreclosure, various workout options are potentially available.
One possibility is a Flex Modification, a unique loan modification program for borrowers with GSE-owned loans. The Flex Modification program generally lowers an eligible borrower’s mortgage payment by around 20%. If you previously received a COVID-19 forbearance, you can access different repayment options, like Flex modifications and other kinds of modifications, when the forbearance expires.
Another option for borrowers facing financial hardship is a six-month payment deferral. On March 29, 2023, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced that the payment deferral policies established during the COVID-19 pandemic would continue to be available for borrowers, subject to some adjustments.
With a payment deferral option, borrowers keep the same monthly mortgage payment and move the past-due amounts to the end of the loan as a non-interest bearing balance, which becomes due and payable at maturity, sale, refinance, or payoff. To qualify, you must have resolved a temporary hardship and resumed your monthly contractual payments but can't afford either a reinstatement or repayment plan to bring the mortgage loan current. A regular payment deferral option is available if the mortgage loan is a couple of months overdue. A disaster payment deferral option helps borrowers with a disaster-related hardship return their mortgage to a current status after up to 12 months of missed payments.
Fannie Mae and Freddie Mac offer mortgage loans for borrowers who earn lower or moderate incomes.
For example, Fannie Mae has the HomeReady mortgage. It also lists homes it has acquired through foreclosure or deeds in lieu of foreclosure and offers them online for sale at a discount at www.HomePath.FannieMae.com. Freddie Mac has the Home Possible mortgage and HomeSteps.com for finding properties.
While Freddie Mac and Fannie Mae are shareholder-owned, they’ve both been under government conservatorship since the Great Recession.
Currently, Fannie Mae and Freddie Mac own or back most of the mortgage loans in the United States, which probably isn’t sustainable for the long run, given the financial risk to the government. Private investors will probably have to start assuming more risk in the secondary mortgage market at some point.
Go to Fannie Mae's Know Your Options website to learn more about Flex Modifications and other workout options for borrowers with Fannie Mae loans. To find out if Fannie Mae owns your mortgage loan, go to https://www.knowyouroptions.com/loanlookup or call 800-2Fannie (800-232-6643).
For more information about Freddie Mac and how it works, go to the Freddie Mac website. To find out if Freddie Mac owns your mortgage loan, use Freddie Mac's Loan Lookup tool.
If you’re behind in your mortgage payments—or think you soon will be—and want to learn about different ways to avoid a foreclosure, consider contacting a HUD-approved housing counselor. A housing counselor can help you understand the specific options available to you, whether Fannie Mae, Freddie Mac, or another entity owns your home loan.
You can also call your loan servicer to learn about different options to avoid foreclosure. If you want to learn about foreclosure procedures in your state, including how long the process takes, talk to a foreclosure lawyer.
]]>Given the costs an investor must bear in the foreclosure process, loss mitigation is supposed to benefit the investor. Loss mitigation is also meant to help the borrower.
Some loss mitigation options, such as a loan modification, forbearance agreement, and repayment plan, allow the borrower to stay in the home. Other options, like a short sale or deed in lieu of foreclosure, help a borrower give up the property without going through a foreclosure.
Again, “loss mitigation” is the process in which borrowers and their loan servicer work together to avoid a foreclosure.
To apply for loss mitigation, contact your servicer's loss mitigation department, sometimes called the "home retention department" or something similar. Ask them to send you a loss mitigation package (application).
You'll have to fill out the application and provide some supporting documentation to your loan servicer, such as pay stubs, bank statements, and tax returns (see below). The servicer will review and evaluate your application materials and let you know if you qualify for any loss mitigation options.
If the servicer denies your application for loss mitigation, it must inform you in writing why your application was denied, such as you don't qualify for a modification because your income isn't high enough to support a modified payment amount or you've already used all available loan modification options.
By applying for a loss mitigation option, you might get a solution to avoid a foreclosure and maybe even keep your home. For example, if you want to stay in your house, you might qualify for a forbearance, repayment plan, loan modification, partial claim, or deferral. Or, if you can come up with the funds, you can reinstate the loan or redeem your home before or, depending on state law, after the foreclosure.
If you'd like to give up the home without going through a foreclosure, you might be able to complete a short sale or deed in lieu of foreclosure.
With a forbearance plan, you won't have to make any payments, or you make smaller payments, for a specified amount of time.
In a repayment plan, you pay extra each month (more than your regular monthly payment amount) to get caught up on overdue amounts.
To reinstate your mortgage, you must pay the past-due amounts, including missed payments, interest, late fees, and foreclosure costs, in one lump sum. After you reinstate the loan, you resume making your regular payments.
A loan modification adjusts the loan's terms, such as your loan's interest rate or term (length). Usually, the goal of a modification is to make your monthly payments more affordable. Also, the lender typically brings the loan up to date by adding past-due amounts to the debt balance as part of a loan modification.
However, in some cases, and depending on the modification’s terms, your monthly payment might actually increase.
You might qualify for a partial claim if you have a specific type of loan, like an FHA-insured mortgage. Generally, a “partial claim” is an interest-free loan to get current on overdue mortgage payments.
You don’t have to pay the loan back until your first mortgage matures or when you pay off the first mortgage, like when you sell the property or after a refinance. You don't have to make any payments on the partial claim loan until then.
Similarly, in a deferral, the lender defers repayment of delinquent amounts until the home loan ends.
A “short sale” is when a lender agrees to let the homeowner sell the home to a new owner for less than what’s owed on the mortgage.
If your home is worth more than you owe, you don’t need to do a short sale. You can sell the home, pay off the mortgage and any other liens on the property, and pocket the rest.
With a deed in lieu of foreclosure, the lender agrees to accept a deed to the property instead of foreclosing.
Under federal mortgage servicing laws, in most cases, by the time a mortgage payment is 45 days delinquent, the servicer must appoint personnel to help the borrower with loss mitigation. Servicers must also inform borrowers about available loss mitigation options in writing and over the phone, if possible and appropriate.
Specifically, the servicer must assign a single person or a team accessible to the borrower by phone, who can respond to inquiries and work with the borrower through the loss mitigation process. The appointed personnel must be able to advise the borrower about:
To apply for loss mitigation, contact your loan servicer. It’s critical to contact your servicer when you think you might have trouble making your upcoming mortgage payments. You can usually find the contact information for the loss mitigation department on your monthly mortgage statement or the servicer’s web page.
With some loss mitigation options, like a short-term repayment plan, your servicer might be able to evaluate you over the phone and provide an immediate approval. For a more long-term solution, like a loan modification, you usually must fill out and submit a loss mitigation application to the servicer (see below).
Under some state laws, a foreclosure must stop if you apply for loss mitigation.
If your servicer says you must apply a loss mitigation option, it will send you a “loss mitigation package.” (Sometimes, you can get a foreclosure alternative without completing a full application.)
The package will contain information about what documents you must return to the servicer and some forms to fill out. Typically, as part of the application, you’ll need to provide:
The information you'll need to provide varies from servicer to servicer, so be sure you understand exactly what your servicer needs to assess your application.
Generally, federal law requires the servicer to evaluate your application for all loss mitigation options within 30 days, as long as you submit the complete application more than 37 days before a foreclosure sale.
Your credit scores will probably go down after participating in loss mitigation, depending on what option you get. But your scores were already damaged if you were behind on mortgage payments.
Foreclosures, short sales, deeds in lieu of foreclosure, and bankruptcy are all bad for your credit. Bankruptcy is worse. A loan modification might not be so bad, depending on how the lender reports the modification to the credit bureaus.
However, your credit might remain relatively unscathed in a few situations, such as if you get mortgage relief after a natural disaster. And once you get caught up on the mortgage loan and resume making on-time payments, your credit will improve.
Under federal law, if you send the servicer a complete loss mitigation package before a foreclosure starts or more than 37 days before a foreclosure sale, the servicer can’t begin a foreclosure or move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until:
Be aware that, under federal law, the servicer generally doesn't have to review multiple applications from you. But if you bring the loan current after submitting an application, you may send another.
Generally, the servicer must review a completed application within 30 days. Be sure to submit your application more than 37 days before a foreclosure sale.
But loss mitigation is often an ongoing process that lasts even after you've submitted an application and the servicer has provided you with a loss mitigation option. For example, if you get a forbearance, you might need further help with your mortgage payments, perhaps in the form of a loan modification after the forbearance ends.
Redeeming the home will also stop a foreclosure.
Before your home is sold at a foreclosure sale, you get an "equitable right of redemption.”
With the equitable right of redemption, you get the right to pay off the mortgage debt in full, plus any damages the lender suffered due to your nonpayment, like collection fees, court costs, and attorneys' fees in its foreclosure action, at any time after default but before a foreclosure sale. Redeeming stops a foreclosure.
If you redeem before the foreclosure sale, you'll own the property outright with no mortgage.
In some states, foreclosed homeowners also get the right to get the property back within a limited time after a foreclosure sale. This right is called the "statutory right of redemption."
With statutory redemption, you must reimburse the purchaser from the foreclosure sale the price paid, plus certain lawful expenses. Or in some states, the redemption price is the total amount of the mortgage debt. The laws in your state specify how much you have to pay and how long you have to redeem the property if you get that right.
If you want to learn more about how foreclosure works, including loss mitigation options and your rights under federal and state laws, consider talking to a foreclosure attorney. An attorney can also help you navigate your servicer's loss mitigation process.
A HUD-approved housing counselor is another valuable source of (free) information about loss mitigation options.
]]>A "default judgment" is a judgment in favor of the lender when the borrower doesn’t respond to a foreclosure lawsuit (a judicial foreclosure). The main danger of allowing a default judgment against you is that, once it happens, you’ll lose the opportunity to fight the judicial foreclosure.
Again, a court will enter a default judgment if the borrower fails to respond to a foreclosure lawsuit. Once the court issues a default judgment, the lender may proceed with the foreclosure uncontested, usually resulting in a sale of the property to recover the outstanding debt.
A default judgment basically expedites the foreclosure process. So, if you want to challenge a foreclosure, you must respond to the lender's lawsuit.
You’ll potentially face a default judgment in a judicial foreclosure, but not a nonjudicial one. Here's how the judicial foreclosure process generally works:
In a judicial foreclosure, you’ll receive a complaint or petition (or similar document) and a summons. The summons will notify you about your rights and let you know how many days you get to file a formal written response, called an "answer," to the suit, usually 20 or 30 days.
If you choose to file one, the answer must contain legally acceptable responses to the allegations against you in the complaint. An answer is your opportunity to:
If you don't want to fight the foreclosure, you don't have to file an answer in response to the suit.
However, keep in mind that, in some cases, it might make sense to answer the complaint to buy more time to work out a loss mitigation option or live in the home. You must have a reasonable basis for doing so, like you want the lender to prove it owns your loan or provide proof of its allegations, like evidence of the total amount it says you owe under the loan documents. If you file a frivolous answer, you might get stuck paying the opposing party's costs and expenses, including their attorneys' fees.
If you don't file an answer, the lender will probably ask the court (file a motion) for a default judgment. Once the court grants a default judgment, you automatically lose the case, and the lender gets everything it’s asking for, including perhaps a deficiency judgment (see below).
Once the court grants a default judgment, the lender can sell your home at a foreclosure sale.
If you file an answer to the suit, the lender can't get a default judgment from the court. Instead, depending on the strength of your arguments, it might file a motion for summary judgment, asking the court to rule in its favor without a trial or any further legal proceedings because your answer wasn't sufficient for some reason. For example, the case's important facts aren’t in dispute, any defenses you’ve raised lack merit, or you didn’t show wrongdoing by the lender or servicer.
If the court grants summary judgment in favor of the lender, typically after a hearing, the lender wins the case, and a sale will be held. But if the court denies summary judgment, the case will continue through the litigation process, including discovery and trial. Then, the judge will either order the foreclosure sale to go ahead or dismiss the case.
The most immediate consequence for the homeowner is losing the property to a foreclosure sale. After the court enters a default judgment, the lender typically may proceed with the foreclosure process and sell the home through a public auction.
Once the foreclosure is complete, it becomes part of the homeowner's credit files, hurting their credit scores and making it more difficult to get future loans or credit.
Another potential consequence of a default judgment is a deficiency judgment. If the proceeds from the foreclosure sale don't cover the entire outstanding debt, the lender might (depending on state law) be able to pursue a deficiency judgment against the homeowner for the remaining balance. Generally, once the lender gets a deficiency judgment, the lender may collect this amount using typical collection techniques, like a wage garnishment or bank levy.
To avoid a default judgment, you'll need to act promptly after receiving notice of the foreclosure lawsuit and file a response by the deadline given in the summons. In most cases, it's best to talk to a foreclosure lawyer immediately. A lawyer can prepare an answer, file it in court, and represent you during the foreclosure proceedings.
Also, you might be able to avoid a default judgment by working out a loss mitigation option, like a loan modification, with the servicer. In fact, you should contact your servicer as soon as you know you'll have trouble making mortgage payments to discuss ways to avoid foreclosure.
In addition, many jurisdictions offer foreclosure mediation programs, where a neutral third party facilitates loss mitigation discussions between the homeowner and the lender. Participating in mediation often temporarily pauses a foreclosure while talks are ongoing, and you might be able to work out an alternative to foreclosure.
Depending on state law and your loan contract, you might be able to reinstate the loan by a specific deadline, such as 5:00 p.m. on the day before the sale or five days before the sale, for example, by paying just the past-due amounts. Or you might get a right of redemption after the foreclosure sale, depending on state law. If you get a post-sale right to redeem, you can pay the total amount owed (or the foreclosure sale price) and reclaim your home.
Whether you get the right to reinstate or the right of redemption depends on state law and your loan documents. Talk to a foreclosure lawyer to find out if you can reinstate the loan or redeem the property in your situation and the deadline for doing so.
In rare circumstances, you might be able to get a court to set aside (annul) a default judgment. To get a court to set aside a default judgment, you have to file a motion and show good cause as to why you didn’t file an answer. Getting a court to set aside a default judgment is very difficult. Claiming that you didn’t know you had to file an answer or how to file one isn’t an acceptable excuse in most cases. But if you're in the military or have a good excuse, you might be able to get a court to invalidate the judgment.
With a nonjudicial foreclosure, the foreclosure doesn't go through the court system. You won't receive a complaint or be able to file an answer. Accordingly, a default judgment or summary judgment isn’t part of the process.
Instead, the lender completes the steps that state law requires to foreclose—like mailing you notice about the foreclosure, publishing it in a newspaper, and posting sale information at the property—and holds a foreclosure sale. If you want to fight a nonjudicial foreclosure in court, you’ll have to file your own lawsuit.
Homeowners sometimes get served with a lawsuit and don’t know what to do. So, they do nothing. If you’ve received notice that a foreclosure lawsuit has been filed against you and don’t want the court to enter a default judgment against you, talk to a foreclosure attorney immediately. A foreclosure attorney can tell you about potential defenses in your situation, help you explore ways to avoid a foreclosure, and prepare an answer to file in court on your behalf.
If you’ve received notice of a nonjudicial foreclosure, be aware that this kind of foreclosure usually moves quickly. You should talk to an attorney about filing a lawsuit as soon as possible if you think you might want to challenge the foreclosure in court.
]]>Keep reading to learn the difference between these types of notices and what kind of information is supposed to be in them. If the notice you receive doesn’t comply with the law, you might have a defense to a foreclosure.
Mortgages and deeds of trust, especially the official Fannie Mae/Freddie Mac security instruments, often contain a clause that requires the lender to send a notice, commonly called a “breach letter,” informing the borrower that the loan is in default before accelerating the loan and proceeding with foreclosure. Sometimes, the mortgage or deed of trust will refer to this requirement as a "notice of default." However, some state foreclosure laws also require a separate "notice of default," which must be recorded in the land records. So, this terminology can be confusing.
Typically, under the terms of the loan contract, the notice must specify the following:
To avoid foreclosure, the borrower must bring the loan current by paying the total past due amount shown in the letter before the 30 days expire. Also, some states have a law allowing a borrower facing a foreclosure to reinstate the loan by a specific deadline. And many mortgages and deeds of trust contain language giving borrowers a specific amount of time to get current on the loan.
If the 30-day time period expires and the borrower hasn’t paid the specified amount to bring the loan up to date or worked out another option with the lender, foreclosure proceedings will likely begin.
In most cases, a foreclosure can’t start until the borrower is more than 120 days delinquent. So, lenders tend to send the breach letter around the 90th day of the delinquency.
The FDCPA is a federal law that protects consumers from abusive collection practices by debt collectors and collection agencies. Whether the FDCPA applies to foreclosures generally depends on whether the foreclosure is judicial or nonjudicial.
If the FDCPA applies to the foreclosure, the party attempting to collect the debt must send a written notice to the debtor within five days of its first communication. The notice must contain, among other things:
Sometimes, the FDCPA validation notice will be combined with the breach letter. Other times, it might be a separate letter, or, in some cases, it might be included with the complaint for foreclosure.
If you're facing a foreclosure and think the lender violated the loan contract by not sending a breach letter or sent an incorrect letter or an incomplete letter (or is violating the FDCPA), consider talking to an attorney to find out options in your particular circumstances. This failure or violation can be a strong defense to a foreclosure.
]]>You can have no better advocate if you want a loan modification or another loss mitigation option.
A HUD-certified housing counselor is a housing counselor who has passed the HUD Certification examination, works for a participating agency, and is certified by HUD as competent to provide housing counseling services. (24 C.F.R. § 214.3.)
Housing counselors are well-trained in the various ways you might be able to avoid a foreclosure. Your HUD-approved housing counselor can help you assess your loan situation and work with your servicer to find an option that could keep you in your house, like completing a modification or through a refinance program.
If you decide you want to give up the home, a counselor might be able to help you arrange a short sale or deed in lieu of foreclosure. A counselor can also give you information about these options.
HUD-approved housing counselors are paid through government grants and, in some cases, grants from major mortgage lenders. Foreclosure prevention counseling is available free of charge.
A HUD-approved housing counseling agency is a private or public nonprofit organization exempt from federal taxation and approved by HUD. The agency must act under federal guidelines and laws when providing housing counseling services to clients directly or through their affiliates or branches. (24 C.F.R. § 214.3.)
When you contact a HUD-approved counseling agency, you’ll be scheduled for an interview, typically by phone or in person with a counselor. With some agencies, you can meet online. (24 C.F.R. § 214.300.)
During the counseling session, the housing counselor will likely:
The meeting will probably take around 60-90 minutes. The counselor will use the information you provide to develop an action plan. (24 C.F.R. § 214.300.)
At the meeting, the counselor will want to get a handle on your overall financial situation. They'll ask about your income, debts, assets, mortgage, and home value.
So, before the appointment, it’s a good idea to gather information about your finances, including:
Once you or your housing counselor call your servicer and ask for a way to avoid foreclosure, the servicer will probably send you a loss mitigation package. You’ll fill out and return the forms with the help of your counselor.
The servicer will review your income, debt, and hardship to determine your eligibility for a foreclosure avoidance option. Your counselor might even work with the mortgage servicer on your behalf throughout the process.
One study showed that homeowners who work with housing counselors are almost three times more likely to avoid foreclosure through a mortgage modification or another option than those who don't. Still, while housing counselors can do a lot, they’re limited by the servicer and investor (loan owner) policies, called "loss mitigation guidelines." These guidelines outline the rules and eligibility requirements for modifications and other options. So, you might not qualify for an alternative to foreclosure, no matter what you or the counselor do.
But even if you think you won’t qualify for a modification or a different foreclosure alternative, it certainly doesn’t hurt to talk to a counselor and submit a loss mitigation application to your servicer. You can apply for loss mitigation either before the foreclosure officially starts or after a foreclosure has already started. Under federal and some state laws, a servicer can’t start or continue with a foreclosure while your completed application is pending.
You might get a more affordable mortgage payment for the future or qualify for a loss mitigation option you hadn’t previously considered.
The federal Department of Housing and Urban Development (HUD) has a list of approved counselors. To find a counselor near you, visit HUD’s website or call 800-569-4287.
You can also find a counselor by:
If, even after reading about the benefits of using a HUD-approved housing counselor, you decide not to use one, be sure that you understand the different types of available loss mitigation options before you talk to your servicer about ways to avoid a foreclosure.
Also, you might need to talk to a foreclosure lawyer if you're facing an imminent foreclosure or have received legal papers. A lawyer can answer questions about how the foreclosure process works in your state, explain how to fight the foreclosure in court, and tell you whether you have any defenses to a foreclosure.
]]>To reinstate a loan, you must first find out the amount needed to bring the loan current. You can get this information by requesting a "reinstatement quote" or "reinstatement letter" from the loan servicer. The reinstatement quote will give you the exact amount needed to cure the default (generally, the default is failing to make payments) and a good-through date for that amount. The amount you'll have to pay ordinarily includes:
Some states have a law allowing a delinquent borrower to reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other deadline.
If state law doesn't specifically provide a right to reinstate, many mortgages and deeds of trust have a provision giving borrowers a deadline by which they can complete a reinstatement. Check your loan documents for a paragraph called "Borrower's Right to Reinstate After Acceleration" or something similar. See our Key Aspects of State Foreclosure Law: 50-State Chart to determine whether your state’s laws provide a reinstatement right during the most commonly used foreclosure procedure for your state.
Even if the mortgage contract doesn't mention reinstatement, the lender might let you reinstate after considering the situation. However, be sure to ask for permission to reinstate a reasonable amount of time before a foreclosure sale.
To get specific information about whether your documents provide a right to reinstate in your particular situation or to get details about state-specific reinstatement laws, if any, consider talking to a local foreclosure attorney.
It's risky to wait until the last minute to reinstate your loan. The foreclosure sale will proceed if your funds aren't delivered on time. So, if a delay in the courier service happens or a bank processing error occurs, you could lose your home when the funds don't arrive in time.
If possible, present the funds in person to the proper contact designated in the reinstatement quote, or wire the money well before the deadline. Or, if you mail in your reinstatement funds, send the payment via an overnight courier so that you can track it.
To pay off a loan, you must find out the exact amount needed to satisfy the total loan amount. Request a "payoff quote" from your servicer, which is also sometimes called a "payoff letter" or "payoff statement."
The payoff letter will include exactly how much you must pay by a specified date to satisfy the debt. The quote will include the unpaid principal balance and interest, plus any fees and costs. The fees and costs are similar to those listed above for a reinstatement.
The payoff letter will also include instructions for how to send payment. The payoff quote might also describe how much you should adjust the payment if you decide to pay a few days before or after the given payoff date.
If you plan on paying off the loan, you usually need to request a payoff quote a minimum of five business days before the anticipated payoff date. The sale will occur if you don't deliver the funds before the foreclosure sale. Again, you could lose your home if a bank processing error or another delay occurs, and the funds don't arrive in time. So, make sure that you transmit the payoff funds with plenty of time for the transaction to be completed.
Under federal law, the servicer must send you a payoff statement within seven business days of your request unless:
If any of these exceptions apply, the servicer must provide the payoff statement to you within a reasonable amount of time.
Contact your loan servicer to find out what it costs to reinstate or pay off your loan. The servicer might direct you to the foreclosing party's attorney or the trustee’s office to get the quote. You'll most likely have to send a request in writing. Be sure to keep proof of the request; if the company fails to provide the quote, you might be able to use this failure to fight the foreclosure.
If you want to request a reinstatement or payoff quote, but you're not a borrower on the loan, you'll have to provide written authorization from the borrower before the servicer will give you the reinstatement or payoff quote. Payoff and reinstatement figures aren't public information and are only available to a party with a recognized legal interest in the property.
Also, reinstatement and payoff figures aren't quoted verbally. You can only get them in a written statement.
When reinstating or paying off a loan, you must pay every penny included in the quote. If you tender payment and it's inadequate to reinstate or pay off the loan, your payment might be rejected, and the foreclosure could proceed. Often, the foreclosing party’s attorney or the trustee will require that you contact them the day before sending in reinstatement or payoff funds to verify the amount.
If you think the total amount due shown on the reinstatement or payoff quote is incorrect, contact the servicer, law firm, or trustee (whoever provided the amount) by phone and in writing to dispute the amount.
Under federal mortgage servicing regulations, you can send your servicer a “notice of error.” The notice of error, which is a letter disputing the amount in the quote, should include:
For a notice of error concerning an inaccurate payoff balance amount, the servicer must correct the error, if there is one, within seven days, excluding legal public holidays, Saturdays, and Sundays. For most other kinds of errors, the servicer must correct the problem within 30 days, excluding legal public holidays, Saturdays, and Sundays. However, the servicer may generally extend the 30-day period by 15 days if it informs you about the extension and tells you why there is a delay. The 15-day extension isn't permitted if your notice of error is about a payoff statement. If the servicer doesn't respond to your notice of error, consult with an attorney.
Keep in mind that a foreclosure probably won't stop just because you have a dispute with the quote. You might want to consider paying the full amount, especially if the dispute is over a small amount, to ensure the foreclosure process stops.
]]>While entering pre-foreclosure is serious, you still might be able to save your home or give it up without losing it to a foreclosure sale. A few options you could have are:
If you’re looking to buy a home that’s in pre-foreclosure, you have options as well. You could offer enough money to pay off the borrower’s debt or potentially pay less in a short sale.
Pre-foreclosure begins when the mortgage borrower becomes delinquent in payments. Then, the loan servicer, on behalf of the lender, contacts the borrower to discuss getting current on the loan or working out a way to avoid foreclosure, like with a repayment plan. During the delinquency, the servicer can charge the borrower various fees, like late charges and inspection fees.
Then, in most cases, the lender sends the delinquent borrower a notice, perhaps a breach letter around the 90th day of the delinquency, or possibly a specific pre-foreclosure notice that state law requires. The borrower has a limited amount of time to pay the overdue amounts or work out another way to prevent a foreclosure from starting.
Usually, a foreclosure officially begins when the borrower is more than 120 days delinquent on the loan. Once the servicer completes all the steps that state law requires in the foreclosure process, the home is sold at auction. At this point, the property is considered foreclosed, subject to any redemption period.
In some places, the pre-foreclosure process prior to the sale could be as short as a few months. Or it might take more than a year or two before a foreclosure sale happens.
Exactly how long it takes before a home is finally foreclosed depends on state foreclosure laws and whether the foreclosure is judicial or nonjudicial. Generally, judicial foreclosures take longer.
No matter how long the process takes, you’ll likely have plenty of time to apply for—and hopefully get—an alternative to foreclosure. But you should take action as soon as you know you’ll have trouble making your payments or shortly after you fall behind in them.
Yes, you can stop pre-foreclosure on your home. You can apply for loss mitigation either during the time before the foreclosure officially starts or during the pre-foreclosure stage before the sale.
In most circumstances, federal mortgage servicing laws require the servicer to hold off on moving for a foreclosure judgment or order of sale, or conducting a foreclosure sale, if the servicer gets your complete loss mitigation application more than 37 days before a foreclosure sale. (If you submit a complete application before foreclosure starts, the servicer can't begin the foreclosure before evaluating your application.)
Under federal law, the servicer can’t go ahead with the foreclosure until:
After applying for loss mitigation, you might qualify for a loan modification to make the payments more affordable. If you’re ready to move on, you can avoid a foreclosure by selling the home for enough to pay off the loan or completing a short sale (with the lender’s permission).
Or you might be able to give the property to the lender in a deed in lieu of foreclosure. Completing any of these or another loss mitigation option will stop the pre-foreclosure process.
Also, during the pre-foreclosure period, most people get a limited amount of time—either under state law or the mortgage contract’s terms—to reinstate the loan (pay the overdue payments plus fees and costs). Reinstating the loan stops the foreclosure process, and you resume making your regular monthly mortgage payments.
“Pre-foreclosure” in this article means the time between the mortgage default and the foreclosure sale. However, again, some people call the time period before a foreclosure begins the “pre-foreclosure” period. Either way, the borrower has opportunities to pay the overdue amounts or work out a loss mitigation option during pre-foreclosure.
After the foreclosure auction, in most cases, the borrower can get the house back only by redeeming it (if state law provides a redemption period after the sale).
If you think you won't be able to pay your mortgage on time, contact your loan servicer immediately. You could be eligible for a repayment plan, forbearance, loan modification, or another option.
You might also be able to qualify for assistance from the Homeowner Assistance Fund program in your state. The states and the District of Columbia have established specific programs to distribute financial assistance from the federal Homeowner Assistance Fund to help homeowners who are having money troubles.
While the programs differ from state to state in terms of what kind of help is provided and how much money homeowners can get, eligible homeowners can generally qualify for money to pay:
Most state programs are scheduled to last until the earlier of September 30, 2026, or when program funds run out. Many states expect to run out of money before this date.
If your home goes into pre-foreclosure, contact your loan servicer if you haven’t already. You probably have options at this point to avoid a foreclosure sale.
Again, you might consider a reinstatement or qualify for a forbearance, loan modification, short sale, or deed in lieu of foreclosure. Different options are available, depending on what kind of mortgage you have. For example, you might qualify for a Flex Modification if you have a Fannie or Freddie loan. Lenders also offer their own in-house modification options called "proprietary" modifications.
Also, you might be able to participate in foreclosure mediation if your state offers this kind of program.
Pre-foreclosure has a lot more downsides than upsides. If a home reaches the pre-foreclosure stage, it usually means the homeowner is in imminent danger of losing the property. So, there aren’t very many advantages to being in pre-foreclosure.
Once you stop making mortgage payments, your credit scores take a hit. You’re also at serious risk of losing the property to a new owner through a foreclosure sale. Really, the only advantage to being in pre-foreclosure is that you might have more loss mitigation options once you're delinquent on the loan.
However, with some alternatives to foreclosure, like certain types of loan modifications, you only need to show your loan servicer that default is imminent. If you think you might fall behind in payments, contact your mortgage servicer to find out what options are available to you.
Being in pre-foreclosure does affect your credit scores. To what extent your score will fall depends on various factors, like how far behind on payments you are, whether you file for bankruptcy, and whether the foreclosure is completed.
The servicer reports overdue mortgage payments to the three major credit reporting agencies (Equifax, Experian, and TransUnion) as 30 days late, 60 days late, 90 days late, etc. The agencies then add this information to your credit reports.
Your credit scores will probably fall about 50-100 points when you’re 30 days overdue. Each additional missed payment makes your credit scores to drop further. A completed foreclosure or bankruptcy will also damage your credit scores.
Exactly how badly these events hurt your credit depends on whether your credit scores were previously high or low. If you had high credit scores before filing for bankruptcy or falling behind and going through foreclosure, for example, you'd lose more points than if your scores were already low.
A “pre-foreclosure listing” is when the homeowner (mortgage borrower) puts the house up for sale, even though it’s in the pre-foreclosure stage. Generally, the goal of a pre-foreclosure listing is to sell the house for enough to pay off the mortgage. Though sometimes, a pre-foreclosure listing is for a short sale.
By selling the property during the pre-foreclosure period, a foreclosure can be avoided.
You can purchase a home that’s in pre-foreclosure. The selling homeowner will either list at a price sufficient to pay off the outstanding mortgage loan or an amount short of the full debt amount. A sale that’s short of what’s needed to pay off the mortgage loan is called a “short sale.”
The homeowner must disclose that the sale is subject to foreclosure because the sale listing doesn't stop the foreclosure process. If the sale is a short sale, the listing will say so.
If you want to buy a pre-foreclosure property, consider working with an experienced real estate agent who can submit your offer to the homeowners. (If the home is in pre-foreclosure, the listing homeowners still own the property because the foreclosure sale hasn’t happened yet. So, your real estate agent will need to present the offer to the current homeowner.)
The process for buying a pre-foreclosure home is similar to buying any home listed on the market. You’ll want to include a mortgage pre-approval letter before making the offer. The seller and lender (in the case of a short sale) will want to be sure you can afford the amount you're offering.
You would negotiate just as you would any other home-sale transaction. But with a short sale, the lender will also be involved. Keep in mind that you’ll have a limited amount of time to complete the sale, depending on state foreclosure laws. Foreclosures take longer in some states and circumstances than in others.
Information about homes in pre-foreclosure is publicly available, even if the homeowner hasn’t listed the property for sale. Pre-foreclosure listings might also include properties for which a foreclosure auction is scheduled.
To find pre-foreclosure homes listed for sale, check the multiple listing service (MLS). Real estate professionals use the MLS, a network of databases, to list homes that are on the market. You must have a real estate license to access the MLS, so it’s best to work with an experienced real estate agent.
You can also look at websites like Zillow.com and Realtor.com. These websites aren't MLS databases, but they usually get their data from various MLS databases and make it publicly available.
To get specific information about your state's pre-foreclosure procedures and how they apply to your particular situation, consider talking to a local foreclosure attorney.
If you're facing a foreclosure, be sure to look into your options, and don't wait to ask for help if you need it. In addition to contacting your loan servicer, talk to a HUD-approved housing counselor, who will help you for free, as soon as possible to explore different foreclosure avoidance options.
If you have questions about buying a pre-foreclosure property or need help with the process, consider working with an experienced real estate agent or talking to a qualified real estate attorney.
]]>Some of RESPA's requirements can help people facing foreclosure who believe their servicers have made mistakes in servicing their accounts. Specifically, RESPA sets forth requirements for qualified written requests, which require servicers to correct errors or provide information to borrowers who ask for it.
A qualified written request can be especially helpful when facing a nonjudicial foreclosure.
If your home is in foreclosure and you're having difficulty getting information about your account from your loan servicer, you can make a qualified written request. A "qualified written request" is a letter written to the servicer to:
A borrower can force the servicer to provide detailed information about the account by making a qualified written request.
Under amendments to Regulation X, which implements RESPA, that went into effect January 10, 2014, your inquiry will be categorized as a “request for information” or a “notice of error.” These categorizations expand on the previous qualified written request requirements.
Depending on the type of request you send, different time frames apply to when the servicer must respond to you.
The servicer must acknowledge a request for information within five business days and respond within 30 business days. The servicer can usually extend the 30-day response period by 15 business days if it tells you about the extension within the 30-day period and explains the delay. But if you want to know the identity, address, or other contact information for the owner of your mortgage loan, the servicer has to give you that information within ten business days. (12 C.F.R. § 1024.36).
Your servicer must acknowledge a written request that asserts a particular error, like failing to properly apply payments or certain errors about loss mitigation, within five business days. It must correct the error, provide notice about the correction, and provide contact information for you to follow up (or let you know that no error occurred along with the reasons for this determination):
The 30-day time frame can be extended for an additional 15 days if the servicer notifies you within the 30-day period of the extension and gives you the reasons for the delay. However, the servicer can’t get the extension if the notice of error pertains to a payoff statement request or certain errors pertaining to loss mitigation and foreclosure. (12 C.F.R. § 1024.35).
Sometimes, the servicer doesn't have to comply with your error resolution or information request, like if the notice of error or request for information is essentially the same as one you previously sent or your request is overbroad. However, it must notify you within five business days after making that determination and provide the basis for its determination.
To make a qualified written request, you must send a letter to the servicer with the following information:
You don't have to use a specific format when making a qualified written request, but the letter should:
You can find sample letters on the Consumer Financial Protection Bureau's website. Follow the “sample letter” links.
You may send a request for information and a notice of error in the same letter or separately. Send the letter via certified mail, return receipt requested, so you can confirm that the servicer received the letter. Or, again, you might be able to submit your notice online.
If the servicer fails to comply with the law, a borrower may recover:
The statute of limitations (when you must sue) for violations is three years. (12 U.S.C. § 2614).
The lender or servicer may generally initiate or continue a foreclosure even if a qualified written request is outstanding. But it can't hold a foreclosure sale while the request is pending if you send a notice of error based on certain loss mitigation errors, like an error based on the 120-day preforeclosure waiting period or dual-tracking restrictions.
Then, the issue must be resolved before the foreclosure sale or within 30 days, whichever is earlier, so long as the servicer receives the notice of error more than seven days before a foreclosure sale. For a request submitted seven or fewer days before a foreclosure sale, the servicer must make a good faith attempt to respond to the borrower, orally or in writing, and either correct the error or state why the servicer has determined that no error has occurred. (12 C.F.R. § 1024.35).
Qualified written requests can be a particularly useful tool in a nonjudicial foreclosure, where the lender doesn't have to go through state court to foreclose. Because a nonjudicial foreclosure doesn't go through the court system, a judge won't order the servicer to produce information about the account for you to review unless you file your own lawsuit.
So, a qualified written request presents an excellent opportunity for you to get information about your account. To find out if your state primarily uses a judicial or nonjudicial foreclosure process, check our Summary of State Foreclosure Laws.
If you're facing foreclosure and think the servicer has made errors in servicing your account, a qualified written request is just one way to deal with the matter. If the servicer doesn’t respond to your notice of error or request for information, disagrees that it made an error, or refuses to provide certain information, consider consulting with a lawyer.
Talk to an attorney immediately if you're facing an imminent foreclosure sale. Sending the servicer a notice of error or request for information is very unlikely to stop a foreclosure sale. An attorney can advise you about what to do and help you enforce your rights.
It's also a good idea to talk to a HUD-approved housing counselor if you're having trouble with your mortgage payments or facing a foreclosure.
]]>Anyone, including the foreclosing lender, can bid on the home at a foreclosure sale. Usually, the lender bids on the property using what’s called a “credit bid.” If the lender’s credit bid is highest bid at the foreclosure sale, the lender gets the property.
People who take out a home loan sign a security instrument, typically either a mortgage or deed of trust. This document gives the lender the right to sell the property through a foreclosure if the borrowers don’t make the loan payments or violate the agreement in some other way.
State law, in large part, governs the foreclosure process. The procedure will be either judicial or nonjudicial.
The lender starts a “judicial foreclosure” by filing a lawsuit in court. If the court agrees that the borrowers have breached the loan agreement, the court orders the home to be sold at a foreclosure sale.
But in two states, Connecticut and Vermont, the court may give the home's title directly to the lender. This process is called a "strict foreclosure."
In a “nonjudicial foreclosure,” the lender follows specific out-of-court steps to foreclose. State law describes exactly what the lender must do to complete the process.
While the exact steps vary among states, the lender might have to do one or more of the following:
Once the lender completes the state-specific process, a foreclosure sale will take place.
A foreclosure auction is open to the public. The sale usually takes place in the sheriff's office or at the county courthouse, often on the front steps. Sometimes, foreclosure auctions are online. Online foreclosure auctions are becoming common.
After the sale, a deed is issued that puts the home's title in the high bidder’s name. The deed is then recorded in the county records.
With a "credit bid," the lender bids the debt that the borrower owes at the foreclosure sale. Basically, the lender gets a credit in the amount of the borrower's debt.
Only the mortgage lender, which has a secured lien on the property, can credit bid for its collateral (the home). So, at the foreclosure sale, the lender is allowed to make a credit bid.
Other parties who bid on a property at a foreclosure sale, like members of the public or a nonforeclosing junior lienholder, must bid cash or a cash equivalent, such as a cashier's check. If a third party is the high bidder at the sale, the sale proceeds repay the borrowers' debt.
The lender can credit bid as high as the amount owed on the promissory note, plus accrued interest, late fees, and foreclosure costs, without having to come up with actual cash at the sale.
Also, if the foreclosing lender wants to bid over what it’s owed for some reason, that lender can come to the sale with a cashier’s check just like any other third-party bidders.
A “specified bid” means that the lender has specified the amount of its bid. The term "specified bid" is used to indicate that the lender’s opening bid is less than the amount owed to the lender.
Usually, though, the lender will bid up to the amount owed when other bidders are present with a “reserve credit bid.”
With a “full debt bid,” the opening bid covers the full debt. If the homeowner has equity in the property, the lender will probably make a full debt bid.
Again, while the lender can credit bid the full amount of the debt at the sale, including foreclosure fees and costs, it might bid less.
When the winning bid at the foreclosure sale is less than the borrower's total debt, the lender might be able to seek a deficiency judgment against the foreclosed homeowner. Whether the lender can get a deficiency judgment depends on state law.
Typically, the foreclosing lender is the high bidder at a foreclosure sale. After the lender buys the property at the sale and gets title to the home, the property is considered “real estate owned” (REO).
If you’ve defaulted on your mortgage loan, consider talking to a lawyer to learn about the foreclosure procedures in your state and find out whether you have any potential defenses to the action. You can also ask a lawyer for information about loss mitigation options, like a mortgage modification or short sale.
Or you may contact a HUD-approved housing counselor to learn about foreclosure alternatives.
]]>Keep reading to learn the difference between a home inspection connected with the purchase of a property and inspections completed in connection with a foreclosure.
A home inspection is often performed as part of the process of buying a property. A licensed home inspector usually conducts the inspection.
This type of inspection normally includes a review of the condition of the home's:
Many home inspectors also offer additional services, such as testing for mold, radon, and water quality, and performing energy audits.
Following the home inspection, the inspector prepares and delivers a written report of findings to the prospective purchaser, who then uses the report to decide whether to buy the property. The cost of a home inspection is ordinarily several hundred dollars.
On the other hand, a property inspection (sometimes called a "default inspection") is generally performed after a mortgage loan goes into default.
If a loan goes into default, most mortgage and deed of trust contracts give the lender the right to take necessary steps to protect the property's value and the lender’s rights in the property. So, if you're late on your payments or violate the agreement's terms in some other way, your loan contract most likely allows the loan servicer (on behalf of the lender) to hire someone to conduct property inspections.
The servicer usually hires a field services company to conduct the inspections. Inspections are typically ordered automatically once the loan goes into default.
After a default, the lender wants to know whether the property is occupied and being appropriately maintained. So, this type of inspection generally looks at the following:
Properties that are in foreclosure, especially if they're unoccupied, can often suffer damage from things such as:
Routine inspections allow the lender and loan servicer to keep tabs on the property's condition and see whether the home is occupied.
The property inspection will generally be a drive-by inspection. (A home inspection is much more in-depth than a default inspection.)
The amount charged for each property inspection is typically minimal, costing around $10 to $20. The charges for the inspections are then added to the total mortgage debt. But because inspections are ordinarily performed monthly or more often, the charges can add up quickly to several hundred dollars or more.
Some courts have found that repeated inspections aren't necessary when the loan servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the property's condition.
Fannie Mae’s servicing guidelines, for example, say the servicer must order property inspections for a delinquent mortgage loan unless the servicer is in contact with the borrower and the borrower is trying to resolve the delinquency or is in Chapter 13 bankruptcy and performing under the bankruptcy plan. (Many investors, including Fannie Mae, Freddie Mac, FHA, VA, and USDA, require property inspections under certain circumstances.)
In some cases, you might be able to challenge the fees charged for property inspections as part of a foreclosure defense. For example, if the field services company inspected the wrong property or didn't actually inspect the property as many times as it claims.
If you're facing a foreclosure and want to learn more about the process, including your rights during the process and whether you have any defenses to the foreclosure, consider talking to an attorney.
]]>MERS maintains a database that tracks mortgages for its members as they're transferred from bank to bank. By tracking loan transfers electronically, MERS eliminates the long-standing practice that the loan owner must record an assignment with the county recorder every time the loan is sold from one entity to another.
To fully understand MERS, you must understand the basic terms and documents involved in a residential mortgage transaction.
In some home loan transactions, the mortgage designates MERS as the mortgagee, solely as a nominee for the lender. These loans are called "MERS as Original Mortgagee" or "MOM" loans. In a deed of trust, MERS is designated as the beneficiary to act as the lender's nominee.
In other cases, the loan might be assigned to MERS (solely as a nominee) sometime later in its life cycle after the loan closes. MERS then tracks the loan transfers, acting as the nominee for each holder, eliminating the need for separate assignments when the loan is transferred.
Having the loan in MERS’ name, as a nominee, in the land records saves time and recording costs because multiple assignments aren't necessary each time the loan changes hands.
While MERS then acts as mortgagee, solely as a nominee for the loan owner, in the county land records, it doesn't actually own the debt or hold the promissory note.
A foreclosure is either judicial or nonjudicial, depending on state law and the circumstances. In some judicial foreclosure cases in the past, MERS, solely as a nominee for the loan's owner, was named as the plaintiff in the lawsuit. And MERS was previously sometimes listed as the beneficiary, solely as a nominee for the loan owner, in nonjudicial foreclosure notices.
Courts are divided on the issue of whether MERS as a nominee may be listed as the plaintiff or beneficiary in foreclosure proceedings.
Some state courts have determined that MERS doesn't have standing to foreclose.
To file a lawsuit, a plaintiff must have legal "standing," meaning it must have a direct interest in the lawsuit's outcome. Some states have decided that only the lender (or current loan owner) has such an interest in a foreclosure. In those states, because MERS acts solely as a nominee for the lender, it can't be a plaintiff in a judicial foreclosure.
For instance, in 2010, the Maine Supreme Court held that because MERS doesn't own the promissory note, it lacks standing to begin foreclosure proceedings in that state. Consequently, MERS can't be the plaintiff in a foreclosure case in Maine.
Some nonjudicial states, like Washington, have determined that MERS has no right to foreclose in those states. The Washington Supreme Court ruled that MERS isn't considered a beneficiary under state law. So, MERS can't nonjudicially foreclose a deed of trust in that state because it doesn't own the debt.
Other states have determined that foreclosure cases may proceed in the name of MERS. For example, the Supreme Court of Minnesota decided that MERS has standing to foreclose in that state.
Also, in a case in Nevada, a homeowner’s attorney argued that having MERS as a mortgagee was a fatal flaw in the mortgage process. He claimed that once a loan has a different note holder and mortgage holder, it's permanently flawed and couldn't be foreclosed. But the Nevada Supreme Court disagreed and ruled that mortgages involving MERS could be foreclosed after being assigned back to the lender.
In 2011, MERS changed its rules so that, in most cases, foreclosures may no longer be started in its name. So, before the foreclosure starts, MERS usually assigns the loan back to the lender (or the current loan owner).
In a judicial foreclosure, the lawsuit is then typically filed in the name of the lender or current loan owner. In a nonjudicial foreclosure, the lender or current owner of the loan is named as the beneficiary in the foreclosure notices.
Because MERS changed its rules in 2011, subject to a few exceptions in some states, you generally won't see any more new MERS foreclosures, even in states that previously allowed them.
If you’re facing a foreclosure and you think an issue with MERS exists in your case (like MERS is the named plaintiff or you think that the servicer is using an improper, incorrect, or robosigned assignment in the process), consider talking to a foreclosure attorney.
]]>Few states have laws addressing the neutrality of foreclosure trustees. So, trustees generally look out for lenders' rather than borrowers' interests in foreclosures because they have a financial incentive to do so.
A lender usually requires a borrower to sign either a mortgage or a deed of trust in a home loan transaction. This document creates a security interest in the borrower’s property. When you give a lender a security interest in your property, the property becomes collateral for the debt.
Lenders in some states, like Ohio and New York, use mortgages to create security interests in properties. Lenders in other places, like California and Oregon, use deeds of trust or a similar-sounding document. For example, in Georgia, the document that gives a lender a security interest in a property is called a "Security Deed."
Mortgages and deeds of trust tend to have many of the same general provisions. For example, most mortgages and deeds of trust require the borrower to have homeowners’ insurance and maintain the property in good condition.
Also, both mortgages and deeds of trust give the lender the ability to sell the home through a process called "foreclosure" if the borrower fails to make payments or breaches the contract in some other way.
While mortgages and deeds of trust are similar in many ways, one significant difference between these documents is the parties involved. A deed of trust usually has three parties: the borrower, the lender, and a trustee. A mortgage involves only two parties: a borrower and a lender.
The other major difference between mortgages and deeds of trust is how the foreclosure process works. Mortgages are ordinarily foreclosed judicially (though not always), while deeds of trust are often foreclosed nonjudicially.
The trustee comes into play if you fall behind in loan payments and go into foreclosure. Again, in states where lenders use deeds of trust or a similar instrument containing a power of sale clause, a lender may foreclose out of court in a process called a "nonjudicial foreclosure." A trustee typically manages the nonjudicial foreclosure process.
Depending on state law, a trustee might be an individual, like an attorney, or a business entity, like a bank or a title company. Sometimes, state law limits who may act as a trustee in specific ways.
Trustees are frequently companies established specifically for the purpose of handling the various requirements during the foreclosure process. Some companies that act as foreclosure trustees have the word "service" or "services" in their company name. But even if a foreclosure trustee company uses the word "services" in its name, trustees are not loan servicers.
State law can limit who may act as a foreclosure trustee. In many cases, the state requires the trustee to have some type of presence in the state. Below are some examples of limits states have put on trustees.
The reason for putting these types of restrictions on who may act as a foreclosure trustee is simple: Foreclosure trustees must provide information to homeowners about the foreclosure, how much they need to pay to reinstate the loan, and to whom the money is owed. If the trustee isn't local, it can be difficult, if not impossible, for borrowers to get in contact with the trustee and have a chance at saving their homes and stopping the foreclosure.
Generally, the original trustee appointed in the deed of trust won't handle a foreclosure if you fall delinquent in payments. So, the loan servicer will appoint a new trustee (a "substitute trustee") to manage the foreclosure process.
Often, a notice of substitution of trustee gets filed in the land records shortly before a foreclosure starts. So, if you get a copy of a document appointing a substitute trustee, a foreclosure could be about to begin.
Trustees are supposed to act as impartial administrators in nonjudicial foreclosures. The trustee isn't supposed to advocate for either side and generally must use diligence and fairness when conducting the foreclosure.
But because the lender usually chooses the trustee, who might also be affiliated with the lender or the lender’s attorney, trustees often have a financial incentive to represent the lender’s interests in a foreclosure.
Lenders have the legal right to foreclose if you don’t make your payments, but they must follow the law when it comes to foreclosure procedures. You are well within your legal rights to make sure the trustee has the proper authority to conduct the foreclosure.
If you're a homeowner facing foreclosure from an improper trustee, you might be able to bring your foreclosure to a halt, if only temporarily, by challenging the trustee’s authority to foreclose. Ultimately, the lender could restart the foreclosure after hiring a proper trustee to foreclose, so raising this issue won’t stop the foreclosure forever.
But it might give you some extra time to stay home.
Check your state's statutes to determine if your state has a law restricting who may act as a foreclosure trustee. For more information on how to locate your state's laws, see our Laws and Legal Research page. You can also get this information by talking to a local foreclosure lawyer.
Keep in mind that any given foreclosure or legal situation has many potential claims and defenses. A lawyer can tell you all possible defenses that might be available in your particular situation.
]]>So, to incentivize the former homeowners to move out peacefully and voluntarily, the new owner (usually the bank that foreclosed) sometimes offers them a lump sum of money. This type of transaction is called a “cash-for-keys” deal.
A cash-for-keys arrangement often works like this: After your legal right to live in the home ends, whether that's shortly after the sale or at the end of a redemption period, you’ll receive a letter from the new owner (again, usually the bank) or someone acting on the new owner's behalf, offering you a specific amount of money. Typically, the amount will be a few hundred to a few thousand dollars.
You must agree to vacate the home by a set deadline in exchange for the funds. You’ll have to leave the property in “broom swept” or “broom clean” condition, which means you’ve cleaned up the place, didn’t vandalize anything, cleared out your trash, and didn’t strip the home of fixtures, like appliances, lights, or copper wiring.
If you move out by the deadline and leave the property in satisfactory condition, you’ll get the money. You'll likely have to agree to a final inspection where you’ll hand over the keys and get payment. The money you get is supposed to help pay for your relocation costs.
Banks commonly offer cash-for-keys agreements after foreclosures and during evictions, and sometimes as part of a deed in lieu of foreclosure agreement. You’re more likely to get this kind of offer if the bank is the buyer at the foreclosure sale and the property becomes REO. Having a cash-for-keys policy is a standard procedure with many foreclosing banks.
If a third party buys the home at the foreclosure sale and doesn’t offer you a cash-for-keys deal, consider proposing one. You’ll have to move out eventually anyway, and you might as well try to get some money to soften the blow.
For the new owner, providing a cash-for-keys deal is usually faster and much cheaper than pursuing an eviction and possibly having to fix up a damaged property after the disgruntled homeowner moves out. So, if the new owner offers you money to leave, but you think it’s unfairly low, ask for a higher amount.
Though, don’t get greedy. You shouldn't ask for more than you reasonably believe you’ll need to relocate. The bank or other new owner might withdraw the offer if you ask for too much.
If you’re uncomfortable negotiating a cash-for-keys deal on your own or have questions about how long you can legally live in the property, consider talking to a foreclosure lawyer. An attorney can tell you about your options before and after a foreclosure sale, inform you about foreclosure procedures in your state, and help you work out a cash-for-keys deal to help cover your relocation costs.
Talk to a HUD-approved housing counselor if you can’t afford to hire a lawyer.
]]>Most states require that the foreclosing party (called “the lender” in this article) serve one or more notices to the borrower before holding a foreclosure sale. In a nonjudicial foreclosure, borrowers sometimes receive a Notice of Default and a Notice of Sale, depending on state law.
If the lender fails to comply with the procedural notice requirements under state law, you might have a foreclosure defense. The most common grounds for challenging a foreclosure in this way are claiming that the lender failed to:
Depending on state law, a nonjudicial foreclosure process sometimes begins when a Notice of Default (NOD) is recorded at the county recorder's office. The NOD serves as public notice that the borrower is in default.
The NOD often contains:
If the borrower does not “cure” the default by bringing the payments up to date, including late charges and foreclosure fees, the trustee might (again, depending on state law) then prepare and file a Notice of Sale for the property.
Most state foreclosure laws, judicial and nonjudicial, require that the lender serve a notice of the foreclosure sale date on the borrower. State laws also usually require the lender to publish the sale date, typically in a local newspaper.
The Notice of Sale (NOS) generally states:
The NOS might be recorded in the county land records, mailed to the borrower, published in a newspaper of general circulation in the county where the home is located, and posted on the property and in a public place.
While you might get both a Notice of Default and a Notice of Sale as part of the nonjudicial foreclosure process where you live, foreclosure procedures and the documents you’ll receive vary widely from state to state.
You might get:
For an overview of the foreclosure laws in your state, click on the link to your state in our Summary of State Foreclosure Laws article.
Often, state law requires the lender to send the borrower the required foreclosure notices by mail. State law might require the servicer to send the notice in a particular way, such as by certified mail and first-class mail. Generally, in most states, it is presumed that you received the notice if the lender can prove that it mailed a properly-addressed notice, such as with postal records or a certified mail receipt.
But if the lender can only produce a copy of a notice—but not proof of mailing—that failure might lead a court to believe that the lender didn’t actually mail the notice. If the lender failed to mail a required notice, this failure could provide a strong defense to a foreclosure.
Whether sending an electronic notice, such as by email, is legal depends on applicable federal laws, such as the E-Sign Act (applicable when a lender seeks to satisfy a requirement for a written notice with an electronic record) and on state laws. For example, if a state statute requires a particular foreclosure notice to be sent in writing or by a certain mail-delivery option, the servicer must mail it.
As of January 1, 2023, the standard Fannie Mae and Freddie Mac security instruments (mortgages and deeds of trust) say, "Unless another delivery method is required by Applicable Law, Lender may provide notice to Borrower by e-mail or other electronic communication." But the federal E-Sign Act requires foreclosure notices to be in writing. So, if you sign a mortgage or deed of trust that has this language, a foreclosure notice that was served electronically wouldn't be valid if your state's laws required the notice to be delivered in writing. But the E-Sign Act doesn't prohibit states from enacting laws authorizing the use of electronic notices in foreclosures.
This area of law is complicated. Talk to a lawyer to find out what communications (if any) may be sent to you electronically during a foreclosure.
The lender’s failure to send a required foreclosure notice typically prevents the continuation of the foreclosure process. But you’ll have to raise this issue in court.
Even if your lender served you a particular foreclosure notice, a court might find the notice invalid for some reason. Most courts require lenders to strictly comply with foreclosure statutes and contractual requirements for foreclosure notices, especially in nonjudicial foreclosures, because of the absence of court oversight.
Courts have found notices of default and notices of sale invalid when they failed to correctly identify the information that state law requires (such as the lender or another party that the law requires to be designated in the notice.) Notices sent that violate state timing requirements have also been declared invalid.
The terms of your mortgage loan documents might set additional requirements for a notice of default or notice of sale beyond those in your state’s statutes. The lender's failure to comply with these contractual terms might provide you with a defense against a foreclosure.
In most cases, you must raise a defense of noncompliance with notice requirements in court before the foreclosure is complete. If the foreclosure sale has already happened, you might be limited to monetary damages.
Still, whether you can have a foreclosure sale set aside depends on the facts and the laws in your state. You might have to show significant irregularities in the foreclosure, other flaws in the process, or that you suffered some harm because of the defective notice.
If you're facing a foreclosure and want to learn the specific procedures and what notices are required in your state, as well as about your rights during the process and whether you have any potential defenses to the foreclosure, talk to a local foreclosure attorney as early in the process as possible.
]]>REO properties (sometimes called "bank-owned homes") are properties the lender acquires through foreclosure. The lender then sells them, generally at a discount, because the lender is motivated to be rid of them.
But buying an REO property can be risky; they’re usually sold as-is and might require extensive repairs.
The process of a property becoming REO begins when the borrower fails to make the mortgage loan payments. The lender may then foreclose. Depending on state law and the circumstances, a foreclosure is judicial or nonjudicial.
The property is sold at the end of the foreclosure process so the lender can recoup the amount it loaned to the borrower. At the foreclosure sale, the lender makes a credit bid up to the total amount of the debt, plus foreclosure fees and costs. Any other parties must bid in cash or a cash equivalent, like a cashier's check.
In most cases, the lender will be the highest—and only— bidder at the foreclosure sale.
If the lender is the winning bidder at the foreclosure sale, the property becomes “real estate owned” (REO).
Again, a "real estate owned" property is a bank-owned property that failed to sell to a member of the public at a foreclosure auction.
Usually, a property becomes REO through the foreclosure process. However, the term “REO” also applies to properties that a lender owns as the result of deeds in lieu of foreclosure.
Generally, by the time the property is REO, the servicer will already have a sense of the property’s condition and occupancy. (The servicer orders periodic drive-by property inspections once the loan goes into default and throughout the foreclosure.)
Following the foreclosure, the loan servicer will secure the property and re-key the locks if the property is vacant. It will also make any needed emergency repairs.
But holding on to REO properties for an extended amount of time costs money: the lender must pay for upkeep, property taxes, HOA fees, etc. It’s also financially risky to keep REO properties on your books because they’re subject to vandalism and other forms of crime.
So, the lender will get an REO property ready for sale as quickly as possible and often list it for less than the fair market value.
Sometimes, the servicer will hire an REO management company to facilitate the property's disposition following a foreclosure. These companies typically manage:
The servicer will evict the foreclosed homeowner if the dwelling is a single-family residence that the homeowner is still occupying. Before starting an eviction, the servicer or REO management company might offer a cash-for-keys deal to induce the foreclosed homeowner to vacate the home.
However, if the REO property is a multi-unit or investment property with tenants, the Protecting Tenants at Foreclosure Act (PTFA) applies. This federal law permits tenants to remain in the property through the end of their lease unless the purchaser from the foreclosure sale intends to occupy the property as a primary residence or the lease is terminable at will or month to month.
It also requires longer notice periods for tenants to vacate the property.
Also, some states have adopted additional notice requirements and protections for tenants occupying foreclosed properties.
Once the property is vacant, the servicer or REO management company will develop a marketing strategy for selling the property. Usually, lenders prefer to sell a property in "as is" condition.
Suppose you make an offer to buy an REO property. In that case, it might need to be reviewed and approved by several individuals, like the asset manager and other management, before approval. Plus, you might get a counteroffer.
Once you and the lender settle on a price, the servicer, an asset manager, the agents involved, and/or the REO management company will oversee the closing, receipt of proceeds, and title transfer.
Buying an REO property allows you to acquire a home at a potentially low price. But some risks are also involved when purchasing an REO property.
Again, most lenders don’t want to have a lot of REO properties on their books. So, they list and sell these properties at a discount, and buyers can often get a home for a very reasonable price.
Assuming that the homeowner wasn’t underwater at the time of the foreclosure, an REO property is usually sold for less than its fair market value because the lender is mainly concerned with recovering the amount of money the borrower failed to repay.
Low prices mean you get more for your money. Because lenders don’t offer mortgage loans that cover the total purchase price of a home (they require a down payment), the outstanding loan balance tends to be lower than the property’s fair market value. So, the minimum amount a lender will accept for an REO property is typically less than the home’s market value. This means you get more bang for your buck.
With generally lower prices, an REO property can also yield higher profits if you want to resell it after repairing, upgrading, or remodeling.
REO properties usually don't have outstanding liens or unpaid taxes. Also, a foreclosure eliminates any junior liens from the property. So, REO properties are generally lien-free. Lenders usually also pay any outstanding property taxes before the foreclosure or listing an REO property for sale to ensure a fast and smooth transfer of ownership.
Still, it’s always a good idea to do a title search to verify that an REO property has clear title and that property taxes are current. (A “title search” is a search of public records to ensure that all liens associated with a property have been paid.)
Unlike buying a home at a foreclosure auction, paying for a title search as part of an REO purchase is typical to ensure all outstanding liens are paid off. You should also buy an owner’s title policy, which protects you if title issues arise later.
A detached negotiation process. Another benefit to buying an REO property is that the negotiations don’t involve emotions or sentimentality because no homeowners are involved. You can expect a relatively easy negotiation process because you won’t deal with homeowners with a personal attachment to the property.
REO properties are usually sold as-is, and they often need some repairs.
Why REO properties need repairs more so than other homes. People who don’t have money to make mortgage payments also typically can’t afford the basic upkeep of their homes. A financially-distressed homeowner might have put off doing repairs or routine maintenance—perhaps for years.
Also, when homeowners know foreclosure is inevitable, they often lose the motivation to keep the home in good repair. In addition, homeowners sometimes intentionally damage the property before losing it to a foreclosure sale. You could end up with a house that needs a lot of fixing or extensive restorations.
So, the cost of making repairs could cancel your savings on the purchase price. Even in a regular real estate sale, experts say you should generally expect to shell out between one and three percent of the purchase price to pay for yearly wear and tear. And a home that’s gone through a foreclosure could require quite a bit more.
Pay for a home inspection to avoid unexpected surprises. To get an idea of what to expect, get a home inspection. However, while you can get an inspection before buying an REO property (different from getting one at a foreclosure auction), you’ll probably have to agree to accept the property in its current condition—no matter what the inspection report says.
The lender normally won’t make any major repairs or even minor modifications. So, you should be ready to make some upgrades or renovations. Though, you can use the information from the inspection as part of your negotiations.
Competition for REO properties is sometimes steep. Another downside to purchasing an REO property is that you might face some fierce competition if the price for an REO property is really good. Many people, including investors, landlords, and prospective home buyers, know the various advantages of REOs over regular sales.
So, different potential buyers might be eyeing the exact property you’re considering.
If you want to buy an REO property, you’ll want to work with an experienced real estate agent who can submit your offer to the REO agent or asset manager. You must have a mortgage approval before making the offer. (The lender will want to be sure you can afford the amount you’re offering.)
The REO management company might hire a local real estate agent to list REO properties in the multiple listing service (MLS). The MLS is a network of databases that real estate professionals use to list homes that are on the market. Because you need a real estate license to access the MLS, this is one reason to work with an experienced real estate agent.
You can also look at websites like Zillow and Realtor.com. While these websites aren’t MLS databases, they generally get data from various MLS databases and aggregate it. Then, they make the information publicly available.
But sometimes lenders sell the REO properties they hold in their portfolios without help from real estate agents. Lenders often list their REO properties on their websites when this is the case.
Mortgage investors, like Fannie Mae and Freddie Mac, and guarantors, like the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA), acquire REO properties through the foreclosure or deed in lieu process. You can look for REO properties that these entities hold through their websites:
Websites such as auction.com and foreclosure.com also list REO properties.
Your agent will probably submit your offer through the lender or investor’s REO website. In most cases, the websites your agent will use to submit your offer are the same ones where the investor listed the home, like HomePath or HomeSteps.
The process for buying a home this way, for example, through HomePath or HomeSteps, and submitting an offer is similar to buying any home listed on the market.
If you have questions about buying an REO property or need help with the process, consider working with an experienced real estate agent or talking to a qualified real estate attorney.
Contact a local foreclosure lawyer if you're a homeowner facing a foreclosure and have further questions about the process.
To learn about different alternatives to a foreclosure, like a modification or short sale, talk to a HUD-approved housing counselor who can help you at no cost.
]]>After the bank fulfills all the legal requirements for foreclosure, the home is sold to a new owner at a public sale.
With judicial foreclosures, a sheriff’s sale is customarily used as this last step in the foreclosure process. The successful bidder at the sale becomes the new owner of the property.
A sheriff’s sale is usually an auction that local law enforcement conducts. The sale is open to the public. The sale typically either takes place in the sheriff’s office or at the county courthouse, frequently on the front steps. Some auctions are held online. Online foreclosure sales are becoming more and more common.
Once completed, a sheriff’s deed is issued, giving the home’s title to the high bidder, and the deed is recorded in the county records.
Homeowners generally get notice of a sheriff’s sale in the foreclosure paperwork or through a mailed notice of sale. Also, advertisements of foreclosure sales are normally published in newspapers of general circulation, typically four to six weeks before the sale.
Many county sheriffs also maintain a list in their office or on a website of the properties going to auction.
The foreclosing bank submits the first bid at the auction, which is a "credit bid." With a credit bid, the bank gets a credit in the amount of the borrower's debt.
The bank can bid the full amount of the debt, including foreclosure fees and costs, or it might bid less.
The bank is usually the winning bidder at the sale because no one else tries to buy the property. If the bank buys the property at the sale and gets title to the home, the property is considered “Real Estate Owned” (REO).
When the winning bid at the sheriff's sale is less than the borrower's total debt, the bank might be able to seek a deficiency judgment against the foreclosed homeowner. Whether the bank can get a deficiency judgment depends on state law.
After the bank makes its credit bid, another person or entity can submit a higher bid and win the auction. Unlike the bank, a third party will likely need to put down a money order or certified check for a percentage of the property price at the time of the sale. This requirement varies from place to place.
Some places require the winning bidder to pay a specified amount, say $10,000, immediately after the sale, with the balance due shortly after that. If the winning bidder doesn’t pay the balance within a set time frame, the deposit might become non-refundable, and the property could be re-listed. Or the purchaser might have to pay the full amount of the winning bid at the time of the sale.
The buyer then gets the property in "as is" condition.
If a third party is the high bidder at the auction, the proceeds repay the borrower's debt. But if the sale amount isn’t sufficient to pay off the total debt, the bank might be able to (again, if state law allows it) get a deficiency judgment against the foreclosed homeowner.
As a homeowner, you can take action to try to prevent a sheriff’s sale from happening and keep your home. You could potentially, depending on your circumstances, as well as state and federal law:
Depending on state law, you might also have options after the auction. If state law provides a post-sale redemption period, you can repurchase the home and keep it. Or state law might give you the right to live in the home during the redemption period, even if you don’t exercise your right to redeem. But if you don’t move out when your legal right to occupy the home ends, you’ll most likely get evicted.
Under limited circumstances, you might be able to challenge the sheriff’s sale by filing a motion to set aside (nullify) the sale. A court might set aside the sale if you can show that there was fraud, mistake, or irregularity in the conduct of the sale. For instance, if the bank failed to send you appropriate notice or the auction wasn’t properly advertised in the newspaper as required, these failings can be grounds for an objection to the sale.
As with any legal situation, the law has many nuances and complexities that vary from state to state. If you’re going through a foreclosure and have further questions about the process, consider talking to a local foreclosure lawyer.
If you want to learn about different alternatives to a foreclosure, like a modification or short sale, a HUD-approved housing counselor is an excellent resource that will help you at no cost.
]]>The most common default type is falling behind in the required monthly payments. But breaching other terms in the loan contract is also a default.
You’ll likely be in default on your mortgage loan if:
Once you default on your mortgage loan, the lender can demand that you repay the entire outstanding balance, which is called “accelerating the debt.” The lender can foreclose if you don’t repay the total loan amount or cure the default.
State law or the terms of your mortgage or deed of trust might give you the right to cure (fix) the default.
Also, under some circumstances, federal law requires the servicer to hold off until you're more than 120 days delinquent on the loan before starting a foreclosure.
The 120-day required delay on initiating a foreclosure also generally applies in the case of a non-monetary breach of the loan contract, like:
This 120-day preforeclosure period is designed to give you time to explore loss mitigation options, but it's also a good time to cure the default if you can.
You can cure a payment default by paying the amount due, plus any allowable costs and fees, by a specific time before a foreclosure sale. The cure amount includes just overdue payments, fees, costs, and interest—not future or accelerated payments. After you cure the default, the foreclosure stops.
The amount of time you'll get to cure a default varies depending on state law and the terms of your loan contract. Also, some states limit how many times you can fix a default.
Sometimes, the mortgage or deed of trust you signed when taking out the loan will require the lender to send you a notice before the loan is accelerated, giving you a chance to cure the default. This notice is called a "breach letter."
To get information about foreclosure laws in your state and find links to more detailed articles covering state foreclosure procedures, see our Key Aspects of State Foreclosure Law: 50-State Chart.
Consider talking to a foreclosure attorney if you’re facing a possible foreclosure because you’ve defaulted on your home loan.
Also, it's a good idea to contact a HUD-approved housing counselor to discuss ways to avoid a foreclosure, like getting a mortgage modification.
]]>A “loan servicer” or “mortgage servicer” is the company that handles your loan account. The mortgage servicing company might be the loan's owner, or it might be another company.
Here are a few of the main parties involved in residential mortgage servicing.
The lender or “originator" is the bank or mortgage company that lent you the money when you took out your home loan.
Often, the originator (the original owner of the loan) will sell the loan to a new owner, called an “investor.”
The servicer is the company that manages your loan account. In some cases, the loan owner is also the servicer.
Other times, the owner sells the right to service the loan to another company, separate from the underlying loan. This sale is called a “transfer of servicing rights.” After a mortgage servicing transfer, in most cases, your old and new mortgage servicers must give you notice of the transfer.
That servicer might then hire a vendor, called a “subservicer,” to take on the mortgage servicing duties, rather than servicing the loan itself. The servicer (or subservicer) administers the loan account on behalf of the owner for a fee.
In the past, servicers were almost always banks. Now, though, the servicer might be a bank or a non-bank specialty servicing company.
Among other activities, the servicer usually:
The foremost responsibility of a mortgage servicer is to collect payments from borrowers. The servicer then distributes (“remits”) the part covering interest and principal to the lender or its successor (the investor), and distributes escrow funds into the escrow account, if one exists.
Most mortgages and deeds of trust allow the lender to collect money (called “escrow funds”) from the borrower, usually monthly, to pay real estate taxes and homeowners’ insurance for the secured property. By collecting escrow funds and paying the insurance and tax bills when due, the lender ensures that the security (the home) doesn’t accumulate liens for unpaid real estate taxes and is protected from loss due to fire or other hazards.
The lender usually delegates the right to collect escrow funds and pay the bills to the loan servicer. If you have an escrow account, your loan servicer will send you an annual statement detailing the activity in your account.
If you apply for an alternative to foreclosure (called "loss mitigation"), the servicer will review your paperwork. Various federal and state laws provide timelines and requirements for the servicer.
The mortgage servicer provides monthly billing statements to borrowers, contacts slow payers, answers questions about the account, and sends payoff statements when borrowers request them.
Lenders often require the borrower to pay private mortgage insurance (PMI). The loan servicer collects and distributes the premiums for PMI.
The servicer manages the property if the borrower abandons the home. Most mortgages and deeds of trust give the lender the right to do whatever is reasonable or appropriate to protect its interest in the property, like entering the property to make repairs or changing the locks if the borrower permanently moves out of the home.
The servicer will manage the foreclosure process if the borrower falls behind in payments and can't work out a loss mitigation option.
In return for performing these duties, the mortgage servicer generally receives a fee out of the cash flow from each loan it services.
When the servicer handles loans for one of the quasi-governmental agencies, Fannie Mae or Freddie Mac, the applicable agency determines the fee. But if a private investor owns the loan, the market drives the mortgage servicing fee. Generally, the amount depends on the underlying credit quality of the borrower.
Servicing a loan with a higher quality credit rating brings in fewer fees because mortgage servicing costs are lower. Servicing a loan with lower credit quality (a subprime loan) generates a higher fee because borrowers tend to default on this type of loan, making them more labor-intensive. The mortgage servicer steps in and tries to help the borrower avoid foreclosure, as well as handle a foreclosure if needed, which means more work for the servicer.
When handling loan accounts, servicers sometimes make errors by:
Here are a few ways you can discover your servicer's identity.
Your billing statement will come from the servicer of the loan. It will have the servicer's contact information, like the phone number and website.
If you received a set of preprinted payment stubs in a payment coupon book, each stub indicates the due date, account number, and the amount due.
With each payment, you detach the stub and send it to the servicer. The book will also likely contain contact information for the servicer.
If you have a MERS loan, your servicer's name will be listed in the MERS Servicer ID system. Look on your mortgage or deed of trust to see if it has an 18-digit MIN or “Mortgage Identification Number.”
Then call visit the MERS website or call 888-679-6377. You can use the MIN to find the servicer. You can also search by property address or by entering borrower information and a property address.
You don't get to choose your mortgage servicer. You get to pick a lender when you take out the loan. But after you sign the paperwork, you don’t get any say in who the lender sells the loan to or who services it.
If your servicer makes an error or you need information about your loan account, you may call or write a letter to the servicer—though you’ll get more legal protections if you write a letter. Under the federal Real Estate Settlement Procedures Act (RESPA), if you send a written "notice of error" or "request for information," the servicer has to respond to your letter within specific time limits.
If writing to your servicer doesn’t get you anywhere or if you’re facing an imminent foreclosure due to a servicer’s mistake, consider talking to a foreclosure attorney who can advise you on what to do in your particular situation. You might have a defense that could stall the process or force the servicer to start the foreclosure over.
]]>After the loan is accelerated, the borrower can no longer pay off the loan in installments. The loan changes from an installment contract to a debt that's due in a single, lump-sum payment.
The most common kind of default that leads to loan acceleration is when the borrower doesn’t make the required payments.
But other types of contractual violations can also lead to acceleration. For instance, if the borrower transfers the home's title without getting the lender’s prior written consent, the lender can usually require immediate payment of the full loan amount.
If the borrower doesn't pay back the entire outstanding loan balance after the loan is accelerated, the lender can start a foreclosure to recoup the amount owed.
Acceleration generally happens after the lender makes a clear demand for payment of the entire loan balance. Most mortgages and deeds of trust contain a clause that requires the lender to send a notice, commonly called a "breach letter," after the borrower defaults. This letter warns the borrower that the loan is in default before loan acceleration and foreclosure.
If the lender sends a breach notice before acceleration, courts are split as to whether acceleration gets triggered by the notice or the expiration of the cure period given in the notice. Sometimes, though, acceleration automatically occurs when the borrower fails to make a payment. In some places, the filing of a foreclosure complaint (lawsuit) accelerates the loan.
State law or governmental guidelines govern the timing and notice of acceleration before a foreclosure.
A breach letter typically has to specify the following:
Generally, the servicer will send this letter when the borrower is around 90 days delinquent on payments. That's because, under federal law, in most cases, a foreclosure can't start until the borrower is more than 120 days delinquent on the loan. If you don't cure the default, the foreclosure will begin.
The notice also frequently informs the borrower about the right to reinstate the loan after acceleration (see below) and the right to assert the non-existence of a default or raise a defense in a foreclosure proceeding.
State law often permits the borrower to reinstate the loan after acceleration to stop the foreclosure. Some states, for example, have a law allowing a delinquent borrower to reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other cutoff.
If state law doesn't specifically provide a right to reinstate, many mortgages and deeds of trust contain written language giving borrowers a specific deadline for getting current on the loan. Check your loan documents for a paragraph called "Borrower's Right to Reinstate After Acceleration" or something similar. Often, the contract allows the borrower to reinstate at any time prior to the earliest of:
Also, even if the loan contract doesn't mention anything about reinstatement, the lender might, after considering the situation, let you reinstate.
But you might not get the right to complete a reinstatement if the lender accelerated the loan because you sold or transferred the property without permission. Check the mortgage or deed of trust that you signed when you took out the loan to get detailed information about your right, if any, to reinstate the loan.
To reinstate, you’ll have to pay the lender all of the overdue amounts as if no acceleration had occurred, cure any other kind of default, and pay all expenses that the lender incurred in enforcing the contract, like:
The lender might require you to make a reinstatement payment with a money order, certified check, bank check, cashier's check, or electronic funds transfer.
After you reinstate, the mortgage or deed of trust, and your obligations under it, remain fully effective as if no acceleration had occurred.
Depending on state law and the circumstances, once the loan is accelerated and if you don't reinstate or take other steps to stop the process, the lender will either:
After the lender fulfills all of the legal requirements for foreclosure, the home is sold to a new owner at a public sale, often the foreclosing lender. With judicial foreclosures, a sheriff's sale is customarily used as this last step in the foreclosure process. In nonjudicial foreclosures, trustee's sales are common.
The successful bidder at the auction becomes the new owner of the property, and the proceeds go toward paying off the loan.
If you can't keep up with your mortgage payments, notify your loan servicer immediately to find out what kind of options are available to you.
If your loan has been accelerated and you’re facing a foreclosure, consider talking to a foreclosure lawyer to learn whether you might have any available defenses and to learn about the different loss mitigation options that might be appropriate for your situation.
If you can’t afford a lawyer, a HUD-approved housing counselor is an excellent (free) resource, especially for information about different ways to avoid a foreclosure.
]]>You’ll potentially face a summary judgment if you're in a judicial foreclosure, but not in a nonjudicial one.
If you default on your mortgage loan, the bank can go through a specific legal process, called "foreclosure," to sell your home and pay off your debt.
Depending on state law and the circumstances, the bank will either:
To begin a judicial foreclosure, the bank files a complaint, petition, or similar document with the court. It then serves a copy of the complaint to you, along with a "summons." The summons will tell you about your rights and say how many days you get to file a formal response in writing, called an “answer,” with the court, usually 20 or 30 days.
If you decide to file one, the answer must contain legally acceptable responses to the allegations against you in the complaint. An answer is your chance to respond to the complaint's claims and formally raise any defenses or counterclaims you have against the bank or the loan servicer.
If you don’t file an answer, the bank will ask the court for a "default judgment." With a default judgment, you automatically lose the case. The bank will get everything it asked for in the complaint. So, it will get the right to sell your home at a foreclosure sale and perhaps a deficiency judgment, depending on state law and the circumstances.
But if you file an answer to the suit, the bank won’t be able to get a default judgment from the court. Instead, the bank will probably file a motion for summary judgment.
In this kind of motion, the bank asks the court to rule in its favor without holding a trial or any further legal proceedings because your answer wasn’t sufficient. For example, the case's main facts aren’t in dispute, any defenses you’ve raised lack merit, or you didn’t show that the bank or servicer violated the law. If the court grants summary judgment in favor of the bank, typically after a hearing, the bank wins the case, and your home will be sold at a foreclosure sale.
But if the court denies the bank’s motion for summary judgment, litigation (including discovery and trial) will go ahead. At the end of the trial, the judge will likely either:
With a nonjudicial foreclosure, subject to a few exceptions, the foreclosure usually happens totally outside of the court system. You won’t get a chance to answer a foreclosure complaint, and summary judgment won’t be part of the process.
Once the bank finishes the steps required under state law to foreclose—like mailing you a foreclosure notice, publishing a notice of sale in a newspaper, and posting sale information at your home—it will hold a foreclosure sale.
If you want to fight a nonjudicial foreclosure in court, you’ll have to file your own lawsuit. Be aware that nonjudicial foreclosures usually move quickly. So, if you get a notice about a nonjudicial foreclosure and want to challenge it, talk to an attorney about filing a suit as soon as possible.
If you want to file an answer to a foreclosure lawsuit, consider hiring a foreclosure lawyer. A lawyer can tell you about available defenses in your situation, prepare a response to file in court on your behalf, argue your case at a summary judgment hearing if necessary, and represent you throughout the entire foreclosure process.
If you need information about loss mitigation options, it's also a good idea to talk to a HUD-approved housing counselor.
]]>In some states, the deed of trust or mortgage has a power of sale provision. A "power of sale provision" is a clause in the loan contract. In this clause, the borrower pre-authorizes the property's sale through a nonjudicial foreclosure process after a default. The sale proceeds pay off all or part of the loan balance.
With a power of sale foreclosure, also called a "nonjudicial" foreclosure, the lender can foreclose without court oversight. In a judicial foreclosure, on the other hand, the lender forecloses through the state court system.
State statutes establish the procedures for power of sale foreclosures. Each state has its own requirements. Generally speaking, after the borrower defaults by failing to make payments, the lender provides limited notice of the foreclosure, sometimes by taking one or more of the following actions:
Then, a trustee (a third party that typically handles the nonjudicial process) can sell the property at a foreclosure sale.
The lender must strictly follow the procedures and timeline of notifications, as well as waiting periods, set out in the state statutes when completing a power of sale foreclosure.
The states where power of sale foreclosures are allowed and generally used are Alabama, Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia (sometimes), Georgia, Hawaii (sometimes), 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.
For borrowers, nonjudicial foreclosures have several advantages.
In some states, the lender is prohibited from seeking a deficiency judgment if the lender uses a power of sale foreclosure process.
While a power of sale foreclosure process has no court oversight (or very little), you can still get a court to hear your case if you file your own lawsuit.
The cons to nonjudicial foreclosure include the following.
A power of sale is generally a faster process, usually taking just a few months, when compared to a judicial foreclosure. So, you'll most likely lose your home sooner than if a judicial foreclosure happens.
Again, to get a court to hear your side of the case with a power of sale foreclosure, you'll have to file your own lawsuit to contest the foreclosure.
Depending on what state law requires, you might get a notice of default followed by a notice of sale, a combined notice of default and sale, just a notice of sale, or notice by publication and posting only.
Sometimes, even if the deed of trust or mortgage contains a power of sale provision, the lender may choose to pursue foreclosure through the court system.
Lenders often choose the judicial route if the title to the property has issues, the security instrument has a flaw, or to get a deficiency judgment because, in some states, it can't obtain a deficiency judgment unless it conducts a judicial foreclosure.
If you're facing a foreclosure and want to find out whether the process will likely be nonjudicial or judicial, as well as to learn specifics about foreclosure procedures in your state and get advice about ways to avoid a foreclosure, consider talking to a foreclosure attorney.
It's also a good idea to speak to a HUD-approved housing counselor.
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