The Foreclosure Process

Posted on October 21, 2008. Filed under: Foreclosure Defense, Mortgage Law | Tags: , |

Foreclosure rates in the States like California, Florida, Nevada, Arizona and Colorado continue to increase. The lenders are not always correct in the numerous avenues of legal compliance that they must abide by for each and every single real estate closing.

Florida is a judicial foreclosure state, which means that a civil action must be commenced in order to foreclose upon a delinquent loan. The lender will file a lawsuit against the delinquent borrower and seek to involuntarily force the sale of the borrower’s home or real estate at a public auction to the highest bidder present on that day. The proceeds of the sale will be delivered to the lender to pay all remaining amounts owed on the delinquent mortgage. If there are no bids at the foreclosure sale, the lender will be permitted to take title to the property or home, at which time, the lender will attempt to sell the home or real estate on the open market to recover its mortgage debt. Below, is a brief outline of the time frames in which you can expect the foreclosure law suit to proceed?

o Day 1- Complaint-Filed and served on borrower

o Day 20-30- Borrower’s Answer to the Complaint is due- Borrower will be defaulted for not responding in writing to the Complaint NOTE: It is absolutely imperative that you act before the Court enters a default. Do not ignore the Complaint.

o Days 90-120- Judgment Hearing-Judge will grant the lender a foreclosure judgment and set a sale date usually 30 days out.

o Days 120-150- Foreclosure Sale and Eviction-The home or property will be sold to the highest bidder at a public auction. NOTE: A Bankruptcy must be filed prior to the foreclosure sale, or the Home or real estate will be lost forever!!

In California, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.

Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines

 

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.

The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee’s name, address and phone number and a statement that the property will be sold at auction.

The borrower has up until five days before the foreclosure sale to cure the default and stop the process. The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidder’s ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder. If necessary, the sale may be postponed by announcement at the time and location of the original foreclosure sale.

Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.

I am behind on my mortgage payments, what do I do?

Don’t ignore the problem. It will only make your situation worse. The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house. Prioritize your spending. After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other “unsecured” debt until you have paid your mortgage. Contact us immediately for a free consultation.

I am in foreclosure, what options do I have?

 

There are many options for you to pursue during the pre-foreclosure and foreclosure process. Below is a list of such possible options.

o Do Nothing
o Reinstatement Plan
o Repayment Plan
o Loan Modification/Loan Restructuring
o Loan Refinance
o Loan Forbearance
o Assumption
o Partial Claim
o Pre-Foreclosure Sales
o Short Sales
o Deed-in-Lieu of Foreclosure
o Bankruptcy

Should I open and respond to all mail from my lender or lender’s attorney?
The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action and important dates. Your failure to open the mail will not be an excuse in foreclosure court, and ignoring these notices will only make the situation worse. Before responding, contact us immediately for a free consultation. Your lender will have an attorney working for them, so should you?

I have just been served with a summons and foreclosure complaint. What do I do?
YOU MUST RESPOND IN WRITING AND/OR SERVE AND FILE AN ANSWER AND AFFIRMATIVE DEFENSES WITHIN 20 DAYS OF BEING SERVED WITH THE COMPLAINT. Any delay may make the situation you are in worse, and if a borrower or homeowner fails to do anything at all, the situation may become the worst case scenario possible. Contact us immediately for a free consultation. Florida’s mortgage foreclosure process will absolutely have serious, long lasting ramifications that you may have to deal with in the future, so it absolutely in your best interest to participate now while it is occurring. Your decision to participate now may preserve, protect and safeguard valuable legal rights affecting your future income, credit worthiness and income tax consequences.

If I do nothing, what will happen?
A default and default judgment will be entered, and the clerk of the court will auction your property, usually within 25 to 30 days from entry of a final judgment in judicial states like Florida. In California you will have a 21 day notice of sale

Should I use a foreclosure prevention company?
You don’t need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for information and services your lender may provide for free. Watch out for foreclosure recovery scams! If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home. Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney or a trusted real estate professional.

Will the foreclosure process affect my credit score?
It is hard to say exactly how many points your credit score will drop due to a foreclosure. There are numerous factors that affect your credit score. It does appear though, that loss mitigation options that do not result in the completion of the foreclosure are better for your credit score depending on which credit bureau you are looking at. However, Fair Issac Corp. (FICO) has been quoted as saying that loss mitigation options have the exact same negative effect on a person’s credit score. This is so because Fair Issac Corp. has done very little analysis distinguishing loss mitigation options vs. foreclosures, and as a result of ignorance they treat loss mitigation options and foreclosure all the same. However, Transunion, Equifax and Experian have a little more detailed credit scoring system, so they may account for loss mitigation options. However, a benefit of short sales and other loss mitigation options is that borrowers will generally face a shorter waiting period before they can obtain another mortgage. Many lenders primarily make loans that they can sell to big mortgage players Fannie Mae and Freddie Mac. Fannie Mae generally will not buy loans made to borrowers involved in a short sale in the past two years. That’s shorter than the four-year wait time if you have a deed in lieu of foreclosure on your record, and the five-year wait time if you have a foreclosure on record. Typically, any late mortgage payments are viewed as a negative mark. Generally, negative marks will remain on a credit report for 7 years. Foreclosures also remain on credit scores for 7 years. The impact on credit scores diminishes over time though. Loss mitigation efforts and foreclosure are definitely better than a bankruptcy, as the filing of a bankruptcy is viewed by the credit reporting industry as an attack against all trade lines across the board, whereas a mortgage foreclosure is only an attack against a single trade line, your mortgage lender.

What if I file bankruptcy?
A bankruptcy will stop the foreclosure. A chapter 13 bankruptcy may allow you to make up the arrearages and reinstate your mortgage, over a period of time, usually 5 years. It means you make a regular payment and part payment each month until you get caught up. In a chapter 7, you will have to pay back the arrearages much quicker than 5 years, the foreclosure will continue. The general rule is bankruptcy negatively affects your credit score for 10 years, but sometimes the creditors on a chapter 13 will voluntarily remove it after 7 years to encourage people to file a 13 rather than a 7.

Are there income tax consequences as a result of a foreclosure?
It usually depends on whether or not your home or property has equity and what type of loan it is. If there is no equity, it is likely that the property or home will be sold for less than the mortgage amount owed. The Internal Revenue Service will consider debt forgiveness by the lender as income, and the borrower may also have income in the form of capital gains from the sale or transfer as well. However, there are several ways to offset this gain or income such as offsetting income and capital gains with losses, being insolvent at the time of the transfer and bankruptcy. CONSULT WITH AN ACCOUNTANT. These rules are complicated and you are advised to make a thorough examination of your personal financial situation with an experienced tax professional.

After the property is auctioned by the court clerk, do I have to get out?
Yes. The sheriff’s office will physically evict you and remove you and your personal effects from the property, usually in as little as 10-15 days.

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