Unit 7, types of foreclosure

If the lender does not or cannot pursue a deficiency judgment, the amount that remains unpaid may be taxable to the borrower as

"forgiven debt

Results of foreclosure

-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.

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

If the property has a federal tax lien against it, the foreclosing lender must give ____________' notice of the sale to the Internal Revenue Service or risk having the tax lien remain attached to the real property after the sale

25 days

(t/f)A notice of pendency could be used in a suit to recover attorney fees or broker commissions

False

(t/f)a deed in lieu of foreclosure terminates all existing liens on the property

False

The order of payment in a foreclosure is as follows:

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

order of strict foreclosure

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

________ law governs the foreclosure process

State

___________________ is a court proceeding that gives the lender title directly, by court order, instead of giving cash proceeds from a public sale

Strict foreclosure

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.

(t/F)There is no redemption right in non- judicial foreclosure

True

(t/f)The new owner receives title free and clear of all previous liens, whether the lienholders have been paid or not

True

If a borrower has failed to meet loan obligations in spite of proper notice and applicable grace periods, the lender can ________________ the loan

accelerate

The first step in a judicial foreclosure is

acceleration of the loan

The winning bidder at a judicial sale receives a

certificate of sale, not a deed

A defaulting borrower who faces foreclosure may avoid court actions and costs by voluntarily deeding the property to the mortgagee. This is accomplished with a

deed in lieu of foreclosure

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

deficiency judgment

lis pendens allows

enables other lienholders to join in the suit against the defendant.

The borrower's right of redemption, also called ________________ is the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs

equity of redemption

in a non-judicial foreclosure If proceeds do not cover the debt, the lender does not obtain a deficiency judgment or lien, but must

file a new deficiency suit against the borrower

Judicial foreclosure occurs in states that use a two-party mortgage document (borrower and lender) that does not contain a "power of sale" provision. Lacking this provision, a lender must file a ______________________ and undertake a court proceeding to enforce the lien.

foreclosure suit

involves sale of the mortgaged property under the supervision of a court; initiated by a law suit; available in every state

judicial foreclosure -

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.

If the default is not cured by equitable right of redemption or statutory right of reinstatement, the judicial foreclosure will move forward. This leads to a

judicial sale, also called a sheriff's sale

In the foreclosure suit, a ___________________ gives public notice that the mortgaged property may soon have a judgment issued against it

lis pendens

After payment of real estate taxes (lienholders' claims and costs of the sale), any remaining funds go to the

mortgagor (borrower)

involves sale of the mortgage property without court supervision; available in many, but not all, states

non-judicial foreclosure -

Non-Judicial foreclosure requires the lender to give the borrower a _____________________ and of intent to sell the property in a form prescribed by state statutes.

notice of default (NOD)

Proceeds of the sale are applied to payment of liens according to

priority.

If the borrower fails to cure the default or use other legal means to stop the sale (such as filing a bankruptcy or filing to temporarily stay the foreclosure), the lender may conduct a

public auction

Other avoidance options include

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

at a judicial sale the person holding the certificate will receive a _______________ only after the sale has been confirmed.

sheriff's deed

A ________________ 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

short sale

This 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 al

statutory right of reinstatement, if not redemption

Any 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.

involves court-ordered transfer of the mortgaged property to the lender; available in a few states.

strict foreclosure -

Real estate tax liens are enforced through

tax foreclosure sales, or tax sales

If the borrower does not pay off the loan in full, the lender then files a foreclosure suit, naming the borrower as defendant. The 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

The end result of filing a lis pendens is

that the property cannot be freely sold or encumbered. So the title to the property is unmarketable during the period of the litigation.

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

the equitable right of redemption.

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

the statutory right of redemption

Strict foreclosure is usually available only when

the value of the property is less than the value of the debt.

a non-judicial foreclosure can force the sale of the liened property without a foreclosure suit when

there is a "power of sale" provision in the mortgage or trust deed document

The court's _________________ authorizes an official, such as the county sheriff, to seize and sell the foreclosed property.

writ of execution