What is a foreclosure?
A foreclosure is a legal process where the bank or other creditor takes control of the collateral for a promissory note in default. This collateral is a parcel of real property, and the lender either sells or repossess this property. The process is slightly different from state to state, but there are basically two types of foreclosure, judicial and non-judicial. The type of foreclosure depends on the state. In a mortgage state, the foreclosure used will be a judicial foreclosure and in a deed of trust state, non-judicial foreclosure is used. Florida is a mortgage state, therefore judicial foreclosure will be used. We’ll cover both of these foreclosure legal proceedings in this article.
What is judicial foreclosure?
Used in about half of the states in America, a lender ("mortgagee") brings a lawsuit against the borrower ("mortgagor") to get the property. About half of the states use judicial foreclosure. Like all lawsuits, it starts with a complaint and summons to the borrower.
When in judicial foreclosure, what happens if the borrower doesn’t file an answer to the lawsuit?
In this case, the lender gets a judgment by default. The court then appoints a referee to find the total amount due, including interest and attorney’s fees. Then the lender must put out an advertisement of notice of sale in the newspaper for four to six weeks. If after this process the total amount is still not paid, then a public sale commences, headed by the referee, on the courthouse steps. The lender then must advertise a notice of sale in the newspaper for four to six weeks. If the total amount due is not paid, a public sale is conducted by the county sheriff or another officer of the law on the courthouse steps. Banks and other lenders usually bid up to the amount of the owed debt at the sale. Unless there is significant equity in the property, the only bidder at the sale will be a representative of the lender. If no other buyers bid, then the lender receives title to the immovable property in return. If the proceeds of the sale still do not cover the amount owed, then in some states the lender may issue a deficiency judgment against the borrower and all others that guaranteed this loan. This entire process can take sometimes as little as three months and as long as twelve months, depending on the volume of court cases.
What is non-judicial foreclosure?
Commonly called "power of sale", this allows a lender to foreclose without a lawsuit, which is permitted by most states. Instead of a mortgage, the grantor ("borrower") gives a "deed of trust" to the trustee to hold for the lender ("beneficiary"). When the grantor defaults, the lender files a notice of default and a notice of sale, published in the newspaper. This process takes only 90 days.
What is strict foreclosure?
Not a common procedure, a strict foreclosure does not require a sale. Once the proceeding has begun, the borrower has only a certain amount of time to pay what is owed. After this time, the title reverts to the lender. Strict foreclosure has been seen in many Oregon and California cases, usually taking place regarding land contracts.
What is “reinstating the loan”?
This is when a borrower can "cure" the loan before the date of sale. Many states permit this. This requires the borrower to pay the amount in arrears, plus attorney’s fees and interest. This is a better proposition for the borrower, since the amount in arrears is usually much less than the entire principle balance, which occurs when the lender accelerates the debt. Most states have laws requiring a reasonable notice to the borrower before the acceleration takes place.
What are redemption rights?
These is when the borrower has the right to "redeem" what is owed and get title to their property after the sale. This is not available in all states and the length of this period varies. When the redemption period is long, investors purchase the junior liens on the property so that they may have the right to redeem the property from foreclosure. Whoever holds the most junior lien has the last right to redeem the property by paying the underlying liens. The highest right is reserved for the owner. By obtaining a quitclaim deed for the owner, you have the right to redeem the property yourself.
Free Foreclosure Listings ForeclosureBuyer.net provides free nationwide foreclosure listings. Browse bank owned foreclosures, short sales, and preforeclosure properties.
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I am the sole owner of a piece of property in Detroit Michigan. I have a mortgage through the bank and my name is the only name on the mortgage. If the bank brings a foreclosure against the property are they trying to recoperate the full amount of the morgage note including interest? If the proceeds of the sale do not cover the full amount owed and a deficiency judgement is issued against me, how does this effect my wife, who’s name is not on the mortgage note?
Dear Michael, I have a question for you and I would like your advice.
Say the property I reside in as a tennat has received Judgment for Foreclosure. I have watched the property on Realtor.com drop from $397,000 to currently $150.00.
I read within your writing that once that judgment has been entered, if a new persons buys the property, they too will inherit that foreclosure judgment.
Question is if the landlords get a buyer, would that buyer now be required for the deficiency?
I was thinking of purchasing this property at the lower amount, but I don’t want to be subject to the dificiency.
Would I have to go into court with they landlord first and ask that them vacate the judgment, or if the bank considers me as a worthy purchaser would they then go back into court and vacate the judgment.
What really am I getting into, if it is a mess, should I steer clear, time is running out.
By buying this property, would I also own the deficiency from the orginal debt and as a new owner, how do I get free and clear title?
Michael:
I have a house in Clearwater FL that has been on the market for over two years. When we listed we purchased a new home (with job move) in MO. We have a first mtg that is about 110K and a second (equity line) of 89k. The house is a good deal for someone at 200k if we could sell it. Market sucks, we cannot keep paying mtgs and utlilities on an empty home. Question is if we stop paying the first, should we also stop paying the second- assuming that it may forclose of go short-sale.
I would like to know your response to the three questions asked above.
@ James Spearman,
Banks always go after the full amount of your mortgage left unpaid – unless you do a short sale. This is when they agree to sell for a lower price to avoid having to go through the tedious and costly process of foreclosure. As for your wife, I would obviously consult a real estate lawyer to discuss your options. Since she’s not on the mortgage note, this should leave only you with the deficiency judgment, but will likely still severely affect her credit score. Still, every state is different, so consult a professional to find out what options you have.
@ Ms. Lorain,
You really need more information on this property. Do a CMA. What’s the true market value of this property? How much $ is left on the mortgage? Run the numbers – is what’s left on the mortgage worth more than the value of the home? If you run into too many snags along the way, just move on, there’s tons of pre-foreclosure properties out there.
@ Jeff,
Two years on the market? Ouch. Have you considered a short sale? Obviously, putting money into a property that’s going into foreclosure makes no sense – look at your options and if you’re going short sale, get a good short sale real estate agent. Here in South Florida short sales are now explicitly marked in the MLS so this should help short sale sellers get out of their situations faster.
James,
If you are the only person listed on the mortgage, only your credit will be affected…not your wifes.
Hi,
My landlords house is in serious jepordy. They were within hours of losing it when they were allowed to enroll in somewhat of a “payback” program. I’m not sure what that means. All that I know is that they have to pay ON TIME for 6 months, and then can renegotiate the terms. At least that is the way they explained it to me. So here we are in month two of their deal, and they tell me that they don’t think they are going to make the payments after all. Obviously they are very stressed, and I feel for them. However, I have to worry what I, as a tenant (with children) am going to do? What is going to happen to us? Does the foreclosure process start all over again? Does it go much quicker this time? I was planning to move out of state in February anyway, so is it possible for me to work a deal with the bank or new owners? I’m at a loss at this point, please help.
Hello Michael,
So my question is in regards to a judicial judgment. If the property sells for more than what the judgment was made for, who gets the left over money.
Example: Property judgment is for 48,000.00 and it auctions for 53,000.00. Who gets the remaining 4k?
In our area we have a problem with inland empire foreclosures and how to find south florida foreclosure homes – it really is difficult! Learning about the american housing rescue and foreclosure prevention act and finding government tax foreclosure properties is a drain – but I’m glad I found your mortgage blog to help out!
if my foreclosed house was sold for less than i owed by the bank do i owe taxes on the loss?
Michael-
Wow – great answers and insight. as a real estate professional I often find that most people don’t know how to answer the hard questions- but you do! may I offer to your readers an article I wrote about what they can expect if they are in trouble? Again great site!!
My wife and I are trying to keep up on our house – Due to my companies financial woes (I am an employee) we are burning up savings in the bank to keep up. Question is this, we have money in investments outside of our 401K’s and IRA’s, I have heard never to touch 401k’s, etc. – but what about regular investments? Am I better off not touching that money and risk losing the house? Or should I dip into them to keep us squared away until some of my commissions come in (which could be up to six months). Please advise me.
My mother in law filled out papers to stop a foreclosure. The lender has sent her a form requesting information on household income, she is choosing not to reply. The letter states that if she doesnt reply then they would consider the matter closed and would proceed accordingly what does this mean?
i was told that if my house forecloses, that i could “sell my keys to the bank” and they would give me a couple grand for them…. any truth to this? i’ve never heard of this before.
Also: i was told to gut the house and sell everything i could. Is this Illegal???