Foreclosure is the legal process in which a lender, company, or entity repossesses an individual’s property because of a default on the loan or mortgage. For foreclosure to succeed, it must go through a court of law, which may take months. In most cases, a foreclosure occurs only when the borrower has not made payments for 90 days. There are laws to protect consumers or homeowners in financial distress, but these laws do not apply to all situations. This process exists because lenders need to recoup their losses if a borrower defaults on an obligation they were responsible for paying. Most banks and lenders will sue to repossess the home or other property with many exceptions, including armed service members fighting overseas. The most important information you need to know about foreclosure is whether or not you can stop it from happening.
Procedures
1.Judicial foreclosure
The process of judicial foreclosure works in a very basic but effective way. A court date is set up that the lender can attend, should they so desire. The purpose of this date is to sign the paperwork that will legally allow the lender to take action against the borrower on a particular loan. Two types of documents are available for signing: judicial foreclosure and mortgage foreclosure. The first document to examine is the mortgage document which details all outstanding amounts of principal and interest and any late fees or penalties due, along with a specific date by which payments are made for the loan to continue to be renewable. The judicial foreclosure document is the second document, and it is signed by the judge to authorize the lender to begin the process of taking back their property. The judicial foreclosure document also states that the borrower has been contacted, but they have elected not to participate in this legal settlement.
2.Nonjudicial foreclosure
A nonjudicial foreclosure, sometimes called a power of sale or a deed of trust means the lender can go ahead without a court hearing and seize your home. This method begins with a letter advising that foreclosure is pending and indicating when a particular property is repossessed. They will not allow you to submit a loan modification and will schedule a court date for you to sign off on the foreclosure process. Once the court date arrives, you must sign off on the process only after full disclosure. You will be informed of what will happen if you do not sign off and that you can request that a judge take over the process instead. It is a challenging process and will require hiring an attorney to protect your rights.
3.Declaratory judgment
In a declaratory judgment, you tell the property owner that you plan on foreclosing but are not taking action. It gives the owner time to respond and argue their case by explaining why keeping the property is in their best interest instead of selling it back to the lender. This legal action usually occurs after a judicial or nonjudicial foreclosure has been performed. A judge will rule on whether or not the property should be in foreclosure and then will typically decide based on the facts presented to him. The lender can foreclose on your property if this isn’t an option.
Laws
1.Anti-Deficiency Law
The anti-deficiency law is a federal law that protects homeowners during a foreclosure process. This law states that when a lender repossesses property on behalf of the borrower and subsequently sells it, they cannot pursue the borrower for any remaining unpaid mortgage debt. This law exists because if you were allowed to pursue the borrower for the outstanding balance on their loan, many would be unable to afford their house payments and would walk away from the property, ultimately resulting in your bank owning nothing but an empty lot.
2.Consumer Advocacy Act
The Consumer Advocacy Act (CAA) is a federal law protecting consumers when involved in foreclosure. This law allows you to cancel the foreclosure process and pursue your case against the property owner without penalties. It can be confusing because many states allow you to cancel the foreclosure process if you have been served with a notice of default for any reason. To complicate matters further, not all default notices are related to foreclosure actions, and some are not even legally allowed by federal law. To ensure you follow all the foreclosure laws, you should speak with a consumer advocate or an attorney. It would help to remember to check with your state or local government before these actions.
3.Homeowner Bill of Rights
The Homeowner Bill of Rights is a federal law protecting homeowners during foreclosure. This law was created to protect people from being harassed by lenders and approved by President Obama as part of the Helping Families Save Their Homes Act. As part of this act, lenders must be more cautious about what they say to people behind on their mortgage payments because there are no legal restrictions. In 2008, many in the banking sector were accused of engaging in harassing behavior, which made it hard for homeowners with many mortgage payments to stay afloat.
Alternatives
1.Prepayment Agreement
If you cannot pay by a certain date, the easiest way to purchase more time is by negotiating with your lender on a prepayment agreement. It allows you to pay part of your loan off and then negotiate with your lender on monthly payments over some time so that you can finish paying off the remaining amount. It is a great alternative because you are not required to make payments on the full loan. You are still responsible for paying the bank back, but paying off some of your loan balance gives you a little more leeway.
2.Home Equity Loan Approval
Many people believe that if they file for bankruptcy and ask their lender to write them a home equity loan or take out an installment loan against their house as it is worth less than the current amount on their mortgage, it will somehow help them stay in their home. It is false because the bank will not approve you for the loan, and they will still have the right to take your home if you fail to meet your financial obligations. When you take out a home equity loan, you state that your house has no value or negative equity and is worth less than what you owe.