Homeowners have many possible options before foreclosure happens. The only time it is finally too late is when the house has been sold at auction after a court approves the sale.
General Timeline of Foreclosure Proceedings
Lenders must make a decent amount of effort to attempt to help the borrower avoid foreclosure. Here is a brief timeline of what a borrower can expect after they default on their mortgage payments:
- After the first month, the lender must attempt to contact the borrower by phone to discuss any loss mitigation options.
- Once the borrower has been delinquent for 45 days, the lender must inform them in writing about loss mitigation options and may appoint someone to help them avoid foreclosure.
- After 60 days, the lender will advise the borrower that they have a 30-day grace period to contact a housing counselor. If the borrower chooses to do so, they will receive another 30 days before legal action can happen.
- Once 90 days pass without payment, the lender will issue a notice of acceleration announcing their intent to foreclose.
- If 120 days pass, the lender will begin foreclosure proceedings by filing a lawsuit in court.
Foreclosure proceedings cannot start before 120 days of non-payment. After that, the lender can file a lawsuit asking for the court to issue an order allowing the lender to sell the house.
What Happens Once the Lender Files a Lawsuit?
After the lender files the lawsuit, they serve the borrower with the summons and complaint. The borrower must answer the complaint within 30 days to defend themselves against the foreclosure. If the borrower does not respond, the lender will receive a default judgment in favor of foreclosure.
If the court issues the order to allow the sale, the lender must publish a notice of sale in a newspaper once a week for three weeks. The lender must also send the notice to the borrowers by email, or by other means if they do not have email.
Consent Foreclosure
The borrower and lender can also agree to a consent foreclosure. The court enters the judgment of foreclosure against the borrower and the borrower agrees to walk away from the property. The benefit to the borrower is that the lender usually waives their right to any deficiency judgment (discussed below). However, the borrower may end up having to pay taxes to the IRS on any forgiven debt.
What Happens at the Sale?
At the sale, the lender may bid up to the total amount owed on the property. If the lender wins the auction for less than the amount owed, the lender can get a deficiency judgment against the borrower for the difference. If a third-party bidder wins the auction for more than the amount owed, the borrower gets the surplus amount.
The lender will then have the court confirm the sale. The court will also enter an eviction order for the former homeowner to leave the property within 30 days. If they do not leave the property, the new owner may have the sheriff evict them.
Can a Foreclosure Be Stopped?
There are multiple ways a borrower can prevent foreclosure.
Bankruptcy
Bankruptcy can stop a foreclosure even up to the day of sale. Chapter 13 bankruptcy is most common, but Chapter 7 is also possible.
Loss Mitigation
Loss mitigation usually refers to loan modification. The borrower must submit a completed loss mitigation application within the initial 120 days before the lawsuit. Then the lender cannot begin foreclosure proceedings unless the borrower is ineligible for loss mitigation, rejects the options offered, or fails to follow their mitigation agreement.
Reinstatement
Reinstatement means that the borrower brings the loan completely current, including all costs and fees. It is only available to a borrower once every five years. A borrower may legally reinstate their loan up to 90 days after the lender serves the complaint. Most lenders allow reinstatement at any time.
Redemption
Borrowers can redeem their loans by paying the entire balance due, including costs and fees. For property tax foreclosures, this means paying any outstanding taxes. The redemption period is within seven months after the complaint is filed or three months after judgment. If the owners abandoned the property, the redemption period is 30 days after judgment. If the lender wins the auction for less than the total debt (including any expenses or fees), the borrower has 30 days after the court confirms the sale.
What Do I Do If I Am Facing Foreclosure?
Foreclosure defense is a highly specialized field, and you need quality representation. Vantage Group Legal is a highly accomplished legal services organization that specializes in foreclosure defense. We will review your case for free, and if hired, you will be carefully assigned the right attorney to handle your case from start to finish. Please contact us today for your free consultation.