What is Foreclosure?

When buying property (like a house), many people take a loan from a lender (bank) by pledging their property as a mortgage against defaulting their monthly re-payments. A deed of trust and/or mortgage are given to the lender as primary security instruments.

If the borrower (due to any reason) defaults on the mortgage re-payment for a certain number of consecutive months (depending on the lender, this can be 2 or more), the lender can foreclose on the mortgaged property (sell the property) and try to recover his loan amount.

Depending on which state you reside in, either a Judicial foreclosure procedure is followed or a Non-Judicial foreclosure procedure is followed.

Generally, the judicial foreclosure method is followed when there is no ‘power of sale’ clause in the deed of trust/ mortgage documents. In this case, the borrower needs to file a lawsuit and the court needs to approve the foreclosure process. In many cases, the court themselves will arbitrate and conduct the foreclosure proceedings or it can be left to be done by the lender or their authorized agents (referred to as a Trustee).

If there is no power of sale clause in the deed of trust/ mortgage documents, some states allow Non-Judicial method of foreclosure. In this method, the lender/ their agents can themselves conduct the foreclosure proceedings.

The procedure for foreclosure again depends on the state in which the property is located. Mostly, a notice of sale with the terms and conditions, date, time, etc. of the foreclosure sale is published in a newspaper for a certain number of weeks and the same is sent to the borrower(s) and/or pasted on the property/ public places.

On the scheduled date, the property is auctioned off to the highest bidder. The foreclosure sale can be postponed in certain cases with prior notice. The time line for the foreclosure process can vary depending on the state and it can be anywhere between 60 days to 180 days or even more, in certain cases.

Many times, the borrower is given an opportunity to pay up the mortgage dues along with interest, till a few days before the foreclosure sale. If they do, the foreclosure sale is canceled. Otherwise, the property is sold off.

In some states, deficiency judgments are not allowed even if the property was sold at a lower price than the total amount owed to the lender. In some states, the borrowers have a right of redemption for up to one year during which, they can pay the loan amount and claim their property back. But these factors
vary for each state.

What are the options available for Foreclosure help?

The foreclosure process can be postponed or avoided by using any of the following methods, depending on individual cases. Please note that borrowers need not worry just because their property is put up for foreclosure and they should actively look at all the below options available to them for Foreclosure help. But, the borrower should always remember one thing – Time is crucial. The faster they act (once they anticipate the foreclosure), the better terms they can get. Also remember that foreclosure notice does not mean the end of everything, there are many firms who can help the borrowers out of it.

Loan modification to avoid foreclosure: If there is a genuine reason (like loss of job, natural calamity, etc) for defaulting on the mortgage loan, some lenders may be open for a loan modification instead of going for an outright foreclosure. In this process, the borrower can either negotiate a lower interest rate or negotiate a longer term for their loan so that the monthly payment dues are considerably reduced.

Refinancing to avoid foreclosure: Refinancing generally refers to taking another loan, in order to avoid foreclosure of the current mortgaged property. Borrowers may want to consider the option of refinancing using the FHA – Federal Housing Administration plan or they may choose go with another private lender/ bank. Many banks/ financial institutions are open to refinancing the same property over a longer period of time so that the borrower has a reduced amount to pay every month.

Deed In Lieu of foreclosure: If both the lender and the borrower voluntarily agree to Deed In Lieu of Foreclosure, the borrower can simply transfer the deed / title of the property to the lender in order to avoid foreclosure. The lender is required to cancel the loan and may not be allowed to file deficiency judgments.

Short Sale to avoid foreclosure: Lenders may approve the borrowers to sell their property by themselves in order to settle their loans. This way, they can avoid the legal expenses and time involved in the foreclosure process and the borrowers can choose whom they can sell their property to, and not lose many credit points as well.

Filing for Bankruptcy to deal with foreclosure: If all the above methods fail, borrower has an option for filing for bankruptcy to either get a few months time (without having to pay any dues during that period) during which they can try to arrange additional funds to reclaim their property and avoid foreclosure (or) redistribute their missed mortgage payments and interests over a longer period/ lenient terms and continue paying the dues to keep their property and avoid foreclosure.