Chapter 4: Unit 7 Foreclosure

Foreclosure Process

1) Default 2) Acceleration Clause 3) Judgment 4) Property Appraised 5) Advertised 6) Court Sale 7) Sold

When a borrower loses a home to foreclosure, the results can be severe, such as:

Any equity which existed is most likely lost. The foreclosure becomes public record. The borrower's credit is damaged, possibly preventing or making very difficult the purchase of another home - at least for up to seven years, the length of time it remains in the individual's credit file.

accelerate the loan

If a borrower has failed to meet loan obligations in spite of proper notice and applicable grace periods, the lender can accelerate the loan, or declare that the loan balance and all other sums due on the loan are payable immediately.

What is the function of a deed in lieu of foreclosure?

It avoids foreclosure by transferring legal title to the mortgagee.

What is the purpose of a deficiency judgment?

It enables a lienor to attach the personal and real property of a lienee when the foreclosure sale has not produced enough funds to pay what the lienor is owed.

What happens to the title to a foreclosed property in a strict foreclosure?

It transfers immediately to the lienholder.

What are the basic differences between the three types of foreclosure?

Judicial foreclosure: sale under court supervision Non-judicial foreclosure: sale without court supervision Strict foreclosure: no sale; immediate transfer to the lienholder.

Non-Judicial foreclosure requires the lender to give the borrower what?

NOD (notice of default) and of intent to sell the property in a form prescribed by state statutes.

What basically happens in a foreclosure?

Lienors force a property owner to give up title through court action. This may involve either the lienors' forcing the owner to sell and pay off the creditors, or taking title directly.

What happens to the sale proceeds in a judicial sale?

Proceeds are used to pay 1) costs of the sale; 2) special assessment and ad valorem taxes; 3) first mortgage; 4) other mortgages and liens in order of recording; 5) remainder to the borrower.

In what type of foreclosure is the lender required to file suit asking a court to order the borrower to pay the mortgage debt by a certain date or the lender will automatically gain full title to the property?

Strict ---Under a strict foreclosure if a debt is not paid in full by a set deadline, the court orders transfer of full legal title to the lender, and the lender gains title with no obligation to sell the property.

The deed in lieu alternative to foreclosure offers several advantages to both the borrower and the lender:

The borrower obtains immediate release from most or all of the personal indebtedness associated with the defaulted loan. There is no public foreclosure proceeding. The borrower may receive more generous terms than would be available in a formal foreclosure. The borrowers' credit is hurt less than in a formal foreclosure. The lender achieves a reduction in the time and cost of a repossession. There is less risk to the lender that the borrower will damage the property in revenge for the loss of the property.

certificate of sale

The document given to the individual who successfully bids and purchases a property at a Sheriff's Sale. It does not convey title to the property.

What power does a lender have if a mortgagor defaults in a state that allows non-judicial foreclosure and the mortgage document includes a "power of sale" clause?

The lender can give the borrower notice of the default and a chance to cure it, after which the lender may auction the property.

what does the lender do in a foreclosure?

The lender forces the sale of the real property in the event of default. When the process is complete, the lender can sell the property and keep the proceeds to pay off the mortgage and any legal costs.

Foreclosure

The seizure of property from borrowers who are unable to repay their loans. is a legal process by which a defaulting borrower loses his or her interest in the property used as collateral for a mortgage loan or deed of trust.

Non-Judicial Foreclosure: redemption

There is no redemption right in non-judicial foreclosure.

judicial sale, also called a sheriff's sale, process:

all parties are notified in writing of the sale. the sale is advertised in a newspaper with general circulation. the property is sold to the highest bidder.

judicial foreclosure process

allows the sale of the mortgaged property under the supervision of the court, with the proceeds going first to satisfy the mortgage, then other lien holders, and finally the borrower if any proceeds are left.

the winning bidder received

certificate of sale

Deficiency Judgment

enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns

"power of sale" clause in effect

enables the mortgagee to order a public sale without court decree

A property is secured by a mortgage that does not contain a "power of sale" clause. To foreclose, the lien holder will have to

file a foreclosure suit.

notice of pendency

is NOT the same as placing a lien on a property. It is only legal notice of a pending action that involves the title to, or possession of, a specific piece of real estate. The notice is filed in the office of the county clerk.

Strict Foreclosure

is a court proceeding that gives the lender title directly, by court order, instead of giving cash proceeds from a public sale. This procedure is usually available only when the value of the property is less than the value of the debt.

borrower's right of redemption (equity of redemption)

is the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs. Redemption is possible within a redemption period.

Three types of foreclosure processes enforce mortgage liens:

judicial foreclosure - involves sale of the mortgaged property under the supervision of a court; initiated by a law suit; available in every state non-judicial foreclosure - involves sale of the mortgage property without court supervision; available in many, but not all, states strict foreclosure - involves court-ordered transfer of the mortgaged property to the lender; available in a few states.

What happens to any liens resulting from second loans or home equity loans?

liens resulting from second loans or home equity loans are "wiped out" by foreclosure, but the borrower is still obligated to pay off those loans if the proceeds of the judicial sale are insufficient.

short sale

occurs when a lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan in order to avoid the delay and expense of a foreclosure sale. The lender usually forgives the mortgage balance owed after the sale.

avoidance options

refinancing, temporary arrangements with the lender (loan workout), and bankruptcy.

who governs the foreclosure process?

state law

Statutory Right of Redemption

statutory periods of up to a year following the sale for the owner of a foreclosed property to redeem the estate.

Real estate tax liens are enforced through...?

tax foreclosure sales, or tax sales.

The foreclosure suit asks the court to:

terminate the defendant's interests in the property order the property sold publicly to the highest bidder order the proceeds applied to the debt

Strict Foreclosure: If the debt is not paid in full by the deadline...

the court orders transfer of full legal title to the lender, and the lender gains title with no obligation to sell the property.

equitable right of redemption

the right to redeem property between the time of the default and the foreclosure sale

deed in lieu of foreclosure

which transfers legal title to the lienholder. A lender may not accept a deed in lieu of foreclosure from a borrower the lender deems financially capable of making mortgage payments.

The order of payment in a foreclosure is as follows:

1. the cost of the sale (this refers to the advertising, attorney fees, trustee fees, etc.). 2. any special assessment taxes and general (or ad valorem) taxes. 3. the FIRST mortgage (determined by the order of recording). 4. whatever is recorded next.

Strict Foreclosure Procedure

1. the lender must give appropriate notice to the delinquent borrower. 2. the lender prepares and records the paperwork. 3. After a prescribed period, the lender files suit in court. 4. The court orders the borrower to pay the mortgage debt by a certain date.

Writ of Execution

A court's order, after a judgment has been entered against the debtor, directing the sheriff to seize (levy) and sell any of the debtor's nonexempt real or personal property. The proceeds of the sale are used to pay off the judgment, accrued interest, and costs of the sale; any surplus is paid to the debtor. If the defendant fails to meet the demands of the suit during a prescribed period, the court orders the termination of interests of any and all parties in the property, and orders the property to be sold

public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

Depending on state foreclosure law, "mortgage" may include:

Deed of trust Installment (land) contracts that are payable over more than five (5) years and have an unpaid balance of less than 80% of the purchase price Particular collateral assignments of the beneficial interest in land trusts used as security for lenders Conventional mortgage instruments

What are the differences between the two kinds of right of redemption and the right of reinstatement?

Equitable right of redemption gives the borrower the right to pay off loan amounts and reclaim a foreclosed property up until the completion of the foreclosure sale. Statutory right of redemption allows the borrower to pay the debt and reclaim the property for a statutory period which may go beyond the completion of the sale (up to a year, in some states).Statutory right of reinstatement allows the borrower to cure the default and reinstate the loan during a statutory period before the law suit is concluded.

Non-Judicial Foreclosure

foreclosure that does not require court proceedings or a judgment of foreclosure - the result of the power of sale clause in a deed of trust can force the sale of the liened property without a foreclosure suit

foreclosure suit: lis pendens

gives public notice that the mortgaged property may soon have a judgment issued against it. Lis pendens is a Latin term that means "action pending" or "pending litigation." This notice enables other lienholders to join in the suit against the defendant.

statutory right of reinstatement

his option is available when the borrower wants to cure the default (bring payments up to date) and reinstate the loan as if the loan had not been accelerated at all.