What Is Foreclosure Law
State laws govern much of what happens during foreclosure because they govern the procedures and processes that the lender can use for foreclosure. State law also affects how courts handle foreclosures by determining what foreclosure defenses are available to the borrower and whether the lender can seek a default judgment against the borrower. In proceedings known simply as foreclosure (or perhaps referred to as “foreclosure”), the lender must sue the defaulting borrower in state court. After the final judgment (usually summary judgment) in favor of the lender, the property is sold at auction by the county sheriff or other court officer. Many States require such proceedings in some or all cases of attachment in order to protect the net value that the debtor may have in the property if the value of the attachment of the debt is significantly less than the market value of the property; It also discourages strategic foreclosure by a lender who wants to buy the property. In this foreclosure, the sheriff then issues a deed to the successful bidder at the auction. Banks and other institutional lenders can bid for sale for the amount of debt owing, but there are a number of other factors that can affect supply, and if no other buyer occurs, the lender receives ownership of the property in return. Once mortgages begin the foreclosure process, it can take six months or more to get a clear title for the country encumbered by the mortgage, depending on the state, type of foreclosure, and type of mortgage. Today, many state laws and regulations govern foreclosure to protect both the mortgage debtor and the mortgage holder from injustice and fraud. In the United States, although states have their own variants, the basic premises of attachment law remain the same. For a basic introduction, download the FindLaw Foreclosure Guide [pdf]. State laws determine things like whether a mortgage holder must sue to seize or whether the borrower can be held liable for lost profits if the property is sold for less than he owes. State law also determines whether borrowers have reinstatement or redemption rights.
In short, how an owner experiences foreclosure depends heavily on where that foreclosure takes place. Foreclosure is usually a public auction where the property goes to the highest bidder. If the property is not sold at auction, the lender can keep it as a REO (Real Estate Owned) property and try to sell it later. If your foreclosed property is sold at auction, but the sale price is not high enough to cover your mortgage balance, some states allow the mortgage holder to sue you for the difference in order to obtain a judgment of deficiency. If the property is sold for more than your mortgage balance, you have the option to claim those excess funds later. Since the right of redemption is an equitable right, enforcement is an action in equity. In order to preserve the right of withdrawal, the debtor may be able to apply to the court for an injunction. If the withdrawal is imminent, the debtor must apply for an interim injunction. However, the debtor may be required to deposit a deposit equal to the amount of the debt. This protects the creditor if the attempt to stop the foreclosure is simply an attempt to escape debt. The mortgage service provider – called a mortgage creditor – usually initiates foreclosure proceedings after a 120-day delay in payment. The total time required for foreclosure depends on the condition, type of foreclosure and type of mortgage.
It may take six months or more before the lender obtains clear title to the mortgaged property. Once this happens, the mortgage holder sends a notice of sale to the borrower – the so-called mortgage debtor – stating the date of foreclosure. Before the sale, the owner can always take out the loan again (if state law allows it) or file for bankruptcy to stop the foreclosure. The mortgage borrower may be required to pay for private mortgage insurance (PMI) as long as the principal amount of their principal mortgage exceeds 80% of the value of their property. In most cases, insurance requirements ensure that the lender will recover a predefined portion of the loan value, either from the proceeds of the foreclosure sale or from PMIs or a combination thereof. In 22 states, including Florida, Illinois and New York, judicial enforcement is the norm. Here, the lender must go through the courts to obtain a foreclosure authorization by proving that the borrower is in default. If foreclosure is approved, the local sheriff auctions the property to the highest bidder to try to recover what is owed to the bank, or the bank becomes the owner and sells the property in the traditional way to offset its losses.
Again, since there is no right to due process in the event of out-of-court foreclosure, it is irrelevant whether the borrower actually had knowledge of the performance (i.e. subjective knowledge) as long as the enforcement agent has fulfilled the legal tasks in the termination attempt. [15] The second type of foreclosure, enforcement by powers of sale, involves the sale of the property by the holder of the hypothec and not by the supervision of a court. Where possible, enforcement by the selling authority is generally a faster way to seize property than enforcement by judicial auction. The majority of states allow this method of foreclosure. Again, the proceeds of the sale go first to the mortgage holder, then to other lien holders and finally to the mortgagee. According to RealtyTrac`s January 2014 seizure data report, 1 in 1,058 homes in the U.S. received a foreclosure deposit.
This figure is in the upper range of seizure frequency. In August 2014, the seizure rate was 33.7%, 1.7% more than the previous year. The increase in seizure activity was most notable in New York and New Jersey, the two most densely populated areas in the United States. [38] The graph below shows the average number of quarterly days to execution since the first quarter of 2007. While the process varies from state to state, the foreclosure process typically begins when a borrower defaults or misses at least one mortgage payment. The lender then sends a missed payment notice stating that they have not received that month`s payment. In the event of extrajudicial foreclosure, the mortgage holder does not have to take legal action at all. As a general rule, extrajudicial enforcement is possible if the mortgage contains a power of attorney clause.
This type of clause is most often found in trusted certificates. The lender in an out-of-court foreclosure must always provide notices and meet the waiting periods required by state law and mortgage loan documents. After foreclosure, the previous owner may still have the right to redeem (recover) the property under state law. If this does not happen, the final step in the seizure process is that the new owner must evict the occupants from the property. State law will likely define the exact timeline. After this period, the local sheriff may be required to remove them and their property from the property. Recent housing studies suggest that minority households are disproportionately affected by foreclosures. Other overrepresented groups include African Americans, renter households, households with children, and foreign-born homeowners. For example, statistics show that African-American shoppers are 3.3 times more likely than white shoppers to be foreclosed, while Latino and Asian shoppers are 2.5 and 1.6 times more likely, respectively. Another statistical example: more than 60 per cent of seizures in New York in 2007 involved rental properties.