Foreclosure is the process of legal proceedings by which a lender sells or repossesses a home when the homeowner has ceased making payments on the mortgage. As a homeowner, understanding the individual parts of the sequence is critical to understanding your rights and responsibilities.
Phase 1: Pre-foreclosure
The first phase of the foreclosure process is referred to as the pre-foreclosure phase since the actual foreclosure action has not yet occurred. In this phase, the borrower has missed at least one payment and is now considered to be delinquent on the loan. The problem is exacerbated with each passing month as the borrower continues to fall behind on the required payments. The more time that passes, the greater the problem becomes until, eventually, the lender is left with no choice but to take legal action. Meanwhile, the further behind the borrower gets in payments, the more difficult it becomes to bring the loan current. It also is quite probable that by this time the borrower has defaulted on other obligations as well. Smaller consumer loans such as credit cards are usually the first debts that are not paid, followed by auto loans and home equity loans. Most homeowners will make every effort to hang on to their houses for as long as possible, until finally there just isn’t any money left to make the payments. When individuals default on their home loans, it’s a pretty good indication that they have exhausted all other resources.
Phase 2: Foreclosure and Sheriff’s Sales
The second phase of the foreclosure process occurs at the sheriff’s sale and denotes the period of time when the default or pre-foreclosure phase of the property has expired. It is in this phase that the property is auctioned off at the county courthouse in a public sale to the highest bidder, which is usually the lender. With the exception of the redemption period, the sale terminates the rights bestowed by the homeowner’s interest in the property. The proceeds from the sale are disbursed to the lender bringing the foreclosure action first, which is most often the lender holding the first mortgage. If the proceeds are adequate to satisfy the first lien holder’s position, additional funds are then used to settle any remaining obligations in the order they were recorded. Remaining funds, if any, are disbursed to the homeowner. In some states, if the debt to the lender was not fully satisfied, the lender can file an additional lawsuit with the courts to obtain a deficiency judgment. A deficiency judgment is issued to recover the difference between the full amount that was owed to the lender and the amount that was actually collected at the auction.
Phase 3: Redemption Period
The third phase of the foreclosure process is referred to as the redemption period. It is in this phase that the ownership rights of the property have been transferred to the successful bidder at the auction sale. In most instances, this is the bank or mortgage company that brought about the foreclosure action. Although the lending institution now technically owns the property, it may be limited by a state-mandated redemption period that gives the defaulting borrowers the opportunity to redeem themselves. In other words, if the borrower can come up with the full amount of money owed to the lenders, he or she has the legal right to redeem the property by purchasing it back from them. The defaulting parties rarely, however, come up with the funds required to purchase the property back. After all, if they had the money to buy the house, they wouldn’t have defaulted to begin with. Whether or not your state has a redemption period will depend on whether or not it is a title theory or lien theory state. While most title theory states do not have mandatory redemption periods, most all lien theory states do. The redemption period can range anywhere from a few days to a few months and even as long as one year. During the redemption period, the new owner is precluded from selling the property until the period expires.
Phase 4: Post-foreclosure Market and Lender REOs
The fourth phase of the foreclosure process is referred to as the post-foreclosure phase. It is in this phase that the ownership rights of the property are now transferred to the lending institution that brought about the foreclosure action. The redemption period is past and the previous homeowner no longer enjoys any rights or claims to the property. When ownership is transferred to the lender’s portfolio, it becomes a nonperforming asset and is referred to as real estate owned, or REO. Lenders are, of course, not in the business of managing real estate, nor do they want to be. The very nature of their business, however, demands that they assume risk with each and every loan extended to borrowers. Unfortunately for the lenders, sometimes those borrowers default, and when they do, they have no choice but to foreclose on the property. The average lending institution’s customers don’t even know what a REO is or that they even exist. Lenders certainly don’t promote the fact that they have real estate that has been foreclosed on and is now listed on their books as a nonperforming loan. Although almost all lenders have REOs, very few, if any, will publicize this information. That’s not to say the information isn’t available, but rather to say that lenders aren’t in the habit of broadcasting this information to their general client base.
If your home is in danger of being foreclosed, then White Sands can help. White Sands pays cash for homes in any condition.