A foreclosure is a stressful and confusing time for a homeowner who may be about to lose their home. This process can take a long time to be completed, which adds to the pressures experienced by all of the parties involved.
Most foreclosures take place in California when a homeowner fails to pay four or more mortgage payments on their property. A Notice of Default is usually the first step taken by a lender to start the foreclosure process.
Once this happens, the whole foreclosure process can take anywhere from six months to over a year to be completed. The actual length of these proceedings varies from one foreclosure to another. The local state laws and the communication between the homeowner and the lender, have the potential to make some foreclosures extremely drawn out affairs.
Mortgages and Deed-of-Trust
Each US state has their own laws that have to be followed by borrowers and lenders when a property is being purchased. In most instances, a potential homeowner has two options available to them. They can either buy their home by taking out a mortgage or a deed-of-trust can be used.
When a property is purchased with a mortgage, the lender has to go through the courts to start foreclosure proceedings against the borrower. This is not the case with a deed-of-trust. A lender avoids having to seek permission from a court and they can carry out what is known as a 'trustee's sale'.
Issuing a Notice of Default to the Borrower
The foreclosure process begins when a Notice of Default is issued by a lender when a borrower is not making the agreed payments on their home. This action is taken by a lender thirty days after a borrower has missed their fourth monthly mortgage payment to the lender.
Once the Notice of Default has been issued by a lender, the borrower has a certain amount of time to start paying their mortgage again and bring payments up to date. This period of time depends on the state you live in and the laws that apply there. In most states, the amount of time available to do this is usually between two and three months.
Judicial and Non-Judicial Foreclosure Proceedings
As the name suggests, judicial foreclosure includes the involvement of the courts in any foreclosure proceedings between a lender and the person who has borrowed money from the lender to purchase a home. It is often a slow process that can take many months and even years to complete.
This legal action is put into motion when the lender files a lawsuit against a borrower who has been defaulting on their mortgage. The lender must provide proof that they have taken the necessary actions to solve the problem and have tried to obtain the money owed by the borrower in the appropriate manner. Judicial foreclosure proceedings often take place two to three months after a Notice of Default is issued to a borrower who is defaulting on their mortgage payments.
The non-judicial foreclosure process is much faster than judicial foreclosure proceedings. The non-judicial foreclosure process or 'foreclosure by power of sale', does not require any court involvement in foreclosure procedures between lenders and borrowers. This means a lender has the right to sell a property that has outstanding mortgage payments without asking for permission from a court of law, in order to pay back any financial losses the lender would have otherwise incurred.
Negotiations with a Lender
Some foreclosures are more complex than others and can take a long time to be settled. If a borrower goes through the foreclosure process, it will damage their credit rating and restrict their ability to borrow for a long time to come. Once they realize this, many borrowers attempt to avoid this situation in one of two ways.
Firstly, a borrower may try to negotiate with their lender. The borrower may ask the lender to change their monthly payment agreement in some way, so that the borrower keeps their home and the loan continues to be paid each month.
Carrying out a 'short sale' is the second way a borrower can avoid many of the future credit problems associated with foreclosing on a home. To accomplish a short sale, a borrower and a lender have to agree a 'paid in full' status, which will appear on the borrower's credit report.
This can be a lengthy process. The borrower has to advertise their property for an agreed period of time, which is normally a minimum of two months. If a buyer is interested in purchasing the property, the amount they are willing to pay has to be approved by the lender. The short sale negotiation process can take time and won't be concluded until all parties are happy with the outcome of these negotiations.
In some instances, a short sale may not be possible because of certain factors. If this happens, borrowers have the option to look for a 'deed-in-lieu of foreclosure'. This means a borrower agrees to give up their home to their lender. As a result of this action, the borrower avoids entering into the foreclosure process. A deed-in-lieu of foreclosure can take two or more months to be completed, after the borrower and lender have attempted to agree to a short sale.
Avoiding Eviction After Foreclosure
The possibility of being evicted from their property is the main worry for homeowners during the foreclosure process. However, the redemption period prevents a homeowner from being evicted when foreclosure proceedings have finished. In many instances, the redemption period even lets homeowners buy back their homes at the foreclosure sale price, also known as the 'redemption price'.
The redemption period available to homeowners depends on where you live and the foreclosure laws in your state. If a deed-of-trust was used to purchase the property, this facility is not available to the borrower. However, in some states like California, certain deed-of-trust property sales still have to go through the courts, which means a borrower can still avail of a redemption period.
A large number of foreclosure proceedings become more complicated and take longer than they need to. Understanding how the process works and communicating in a positive way with lenders, can speed up this process and increase the likelihood that borrowers won't lose their homes.