Foreclosure
Thursday, 5 January 2017
by Staff, Spaulding Law
Typically when a person purchases a home, they don’t pay the full amount in cash up front. Instead, they get a loan, make a down payment, and the rest is paid incrementally to a lender. This arrangement is created through a legal document that pledges a piece of real property as security for the debt created by a promissory note (an unconditional promise to repay the amount borrowed) called a mortgage (or deed of trust in some states). If a person falls behind in their mortgage payments, they are in danger of foreclosure. Foreclosure is the legal process that allows the lender of a home loan to sell the home to satisfy the debt the borrower owes. Below are some of the basics of the foreclosure process.
• Pre-foreclosure Process
First a lender needs to know if they are going to use a judicial or non-judicial foreclosure. A judicial foreclosure requires the lender to go through the court system to take back ownership of the property while a non-judicial foreclosure doesn’t have court supervision but does require following a state-specified process. Which process is used will probably be decided by the state where the property resides, as most states use either one or the other. Typically mortgages can only be foreclosed in court, while deeds of trust can be foreclosed without going through the courts.
• Judicial Process
In a judicial foreclosure, the foreclosing party (plaintiff) starts by filing a lawsuit in state court. The borrower receives a copy of the complaint to foreclose and gets a certain number of days to respond to the lawsuit (for example, 30 days). If the borrower doesn’t respond to the lawsuit, the court will grant a judgment of foreclosure and set a sale date.
The foreclosure sale is a public auction where anybody (including the foreclosing party) may bid on the property. The highest bidder becomes the new owner. In Utah, the foreclosing party must publish notice of the foreclosure sale in a local newspaper once a week for three consecutive weeks, with the last publication occurring at least 10 days before the sale, and provide the borrower with a copy of the notice.
• Non-judicial Process
In a non-judicial foreclosure, the lender must take one or more of the following steps:
• Appoint a Trustee qualified to exercise the power of sale (qualifications may vary by state);
• Mail the borrower a notice of default that tells them how much time they have to get current in their payments;
• Record the notice of default in the local records office; and
• Through certified mail (return receipt requested), send the borrower a notice of sale that tells them the date the property will be sold.
Each of these notices have time limits and specific content requirements such as a description of the property, the amount due, the amount necessary to reinstate the loan, and information on the person you can contact to discuss the notice.
Just like a judicial foreclosure, the property is sold at an auction (on the courthouse steps) where anybody (including the foreclosing party) may bid on the property.
• After the Foreclosure Sale
The borrower owns the home up until the foreclosure sale and may legally stay there until this time. If the borrower doesn’t leave the home at this point, the purchaser at the foreclosure sale who is the new owner of the home (often the foreclosing party), must give the borrower a notice to quit before initiating an eviction.
• Deficiency Judgements
In some foreclosure sales, the property does not sell for an amount sufficient to cover the total debt. The difference between the sale price and the amount owed is called a deficiency. For example, if the borrower owes $250,000, but the home only sells for $200,000. There is $50,000 deficiency. The lender may be able to get a judgment against the borrower to pay that deficiency. It is important to be aware of the state laws regarding these judgments. Some states, such as Utah, limit the judgment totals to a fair market value of the home and disregard the higher amount owed. In this instance, if the borrower owes $250,000, the fair market value is $230,000, and it only sells for $215,000, the lender may only receive a judgment of $15,000 instead of $35,000.
While these basics give you a good understanding of what happens in a foreclosure sale, each state has very specific requirements. If you are contemplating a foreclosure, it would be wise to seek the advice of legal counsel to make sure you have complied with every requirement.
This information is made available by Spaulding Law for educational purposes only and not to provide legal advice. By using this website, you understand that there is no attorney-client relationship between you and Spaulding Law, unless you have entered into a separate representation agreement. This information should not be used as a substitute for competent legal advice from a licensed professional attorney.
• Pre-foreclosure Process
First a lender needs to know if they are going to use a judicial or non-judicial foreclosure. A judicial foreclosure requires the lender to go through the court system to take back ownership of the property while a non-judicial foreclosure doesn’t have court supervision but does require following a state-specified process. Which process is used will probably be decided by the state where the property resides, as most states use either one or the other. Typically mortgages can only be foreclosed in court, while deeds of trust can be foreclosed without going through the courts.
• Judicial Process
In a judicial foreclosure, the foreclosing party (plaintiff) starts by filing a lawsuit in state court. The borrower receives a copy of the complaint to foreclose and gets a certain number of days to respond to the lawsuit (for example, 30 days). If the borrower doesn’t respond to the lawsuit, the court will grant a judgment of foreclosure and set a sale date.
The foreclosure sale is a public auction where anybody (including the foreclosing party) may bid on the property. The highest bidder becomes the new owner. In Utah, the foreclosing party must publish notice of the foreclosure sale in a local newspaper once a week for three consecutive weeks, with the last publication occurring at least 10 days before the sale, and provide the borrower with a copy of the notice.
• Non-judicial Process
In a non-judicial foreclosure, the lender must take one or more of the following steps:
• Appoint a Trustee qualified to exercise the power of sale (qualifications may vary by state);
• Mail the borrower a notice of default that tells them how much time they have to get current in their payments;
• Record the notice of default in the local records office; and
• Through certified mail (return receipt requested), send the borrower a notice of sale that tells them the date the property will be sold.
Each of these notices have time limits and specific content requirements such as a description of the property, the amount due, the amount necessary to reinstate the loan, and information on the person you can contact to discuss the notice.
Just like a judicial foreclosure, the property is sold at an auction (on the courthouse steps) where anybody (including the foreclosing party) may bid on the property.
• After the Foreclosure Sale
The borrower owns the home up until the foreclosure sale and may legally stay there until this time. If the borrower doesn’t leave the home at this point, the purchaser at the foreclosure sale who is the new owner of the home (often the foreclosing party), must give the borrower a notice to quit before initiating an eviction.
• Deficiency Judgements
In some foreclosure sales, the property does not sell for an amount sufficient to cover the total debt. The difference between the sale price and the amount owed is called a deficiency. For example, if the borrower owes $250,000, but the home only sells for $200,000. There is $50,000 deficiency. The lender may be able to get a judgment against the borrower to pay that deficiency. It is important to be aware of the state laws regarding these judgments. Some states, such as Utah, limit the judgment totals to a fair market value of the home and disregard the higher amount owed. In this instance, if the borrower owes $250,000, the fair market value is $230,000, and it only sells for $215,000, the lender may only receive a judgment of $15,000 instead of $35,000.
While these basics give you a good understanding of what happens in a foreclosure sale, each state has very specific requirements. If you are contemplating a foreclosure, it would be wise to seek the advice of legal counsel to make sure you have complied with every requirement.
This information is made available by Spaulding Law for educational purposes only and not to provide legal advice. By using this website, you understand that there is no attorney-client relationship between you and Spaulding Law, unless you have entered into a separate representation agreement. This information should not be used as a substitute for competent legal advice from a licensed professional attorney.
