Going Through a Foreclosure? Here's Everything You Need to Know About Facing Foreclosure
Foreclosure is a legal process in which the lender takes control of a property due to a homeowner's inability to make the agreed upon mortgage payments. While the foreclosure process varies by state, the process has similarities in all locations.
Foreclosure is generally the result of financial difficulty, as homeowners go into foreclosure when they face financial hardships such as job loss, a wage earner dies, or when their home loses value and they become unable to sell.
Knowing what foreclosure is, what the foreclosure process is, and what can be done to stop a foreclosure is important for a homeowner experiencing financial hardship. The more the homeowner knows about foreclosure and how it can be prevented, the easier it will be for the homeowner to try and keep their house.
What's most important to understand is that foreclosure is a legal process and requires deadlines, forms and regulation. Banks are required to follow the same rules that homeowners are required to follow; therefore, understanding the rules the banks are required to follow can help the homeowner ensure the process is following the law, and if it is not, then the homeowner may be able to take action to prevent the foreclosure from occuring.
Foreclosure begins when the homeowner fails to make a payment, and a process is triggered within the bank. The early stages of repossession of a home begins when the lender files a default notice on the property. At this point, the homeowner can either pay their unpaid debt or sell the home. If the homeowner does not do one of these two things, the foreclosure process will proceed. Pre-foreclosure begins when the homeonwer is at least three months late on their mortgage payments.
When a pre-foreclosed home is sold, this is known as a short sale. While the sale can be a private transaction between the homeowner and buyer, the bank must approve the buyer's offer. If the bank does not approve the short sale, then the short sale cannot take place.
The short sale process can be challenging for a homeowner who has never experienced the process before. Therefore, it's important for the homeowner to work with an experienced real estate professional, as they know how short sales proceed and can advise the homeowner on the following steps:
- The homeowner applies for a short sale by filling out an application and submitting a short sale package to the lender.
- A buyer or buyers makes offers on the home, and those offers are presented to the lender for consideration.
- The lender accepts, rejects, counters or ignores the offers.
- Once an offer has been accepted by the lender, the sale proceeds like other home sales, with the buyer completing an inspection and appraisal.
Pros and Cons of Selling During Pre-Foreclosure
Unless the homeowner is able to catch up on payments, selling the house is generally seen as the best option for all parties involved. For the homeowner, a short sale is a good way to avoid foreclosure and the damage that foreclosure can do to the homeowner's credit. Short sales enable the homeowner to remain in control of the process, whereas a foreclosure is a process that the homeowner cannot control.
For the lender, the short sale is better than foreclosure because it is less costly, faster, and the lender is able to find a buyer who is able to make the payments.
For the buyer, the short sale is a way to purchase a home below market value or a home they might not otherwise be able to afford, either in a neighborhood that is normally out of their budget, or a home that is larger than they would otherwise be able to purchase.
However, there are some downsides to selling during pre-foreclosure, with the first being that short sales can take a very long time. Additionally, in South and North Carolina, home buyers who make an offer on a home and have their offer accepted by the seller may not get the home if the lender decides to accept an offer from another buyer.
Sometimes, lenders refuse to respond to offers from home buyers, and the home buyer is left waiting to hear back until they walk away, which can be a frustrating experience for the home seller as well as the buyer.
Judicial and Non-Judicial Foreclosure
In some cases, the homeowner has a choice between a judicial versus a non-judicial foreclosure. A judicial foreclosure is a foreclosure that is handled in the courts, and a non-judicial foreclosure proceeds with the help of a neutral third-party trustee. In some states, judicial foreclosure is the only option, but in others, non-judicial foreclosure is available to homeowners who choose this route.
Before choosing the route that's right for them, homeowners should seek help from a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD), or from an experienced housing attorney.
A judicial foreclosure occurs when the lender goes to court to receive a judgement. Judicial foreclosure is a long and involved process, and it proceeds in a pre-determined way that has been established for the courts with very little exception.
Some homeowners choose judicial foreclosure because they want the assurance of knowing the foreclosure process will take a long time. Judicial foreclosure is known to be exceptionally slow, which is why some lenders prefer judicial foreclosure for the same reasons. If there is a complex issue to work through, relating to the title of the house for example, then the lender may want that additional time to complete the paperwork and resolve the issue for the foreclosure's conclusion.
Non-judicial foreclosure grants the homeowner and the bank more leeway. With a non-judicial foreclosure, lenders may sometimes enable homeowners to set up a payment plan, catch up with payments, or reach a settlement the lender can agree to. However, this flexibility can also make foreclosure more problematic for homeowners. For example, lenders may speed through the non-judicial foreclosure process, leaving homeowners without a home faster than if they had chosen judicial foreclosure instead. To give homeowners some perspective on how fast a non-judicial foreclosure can be, it can take just a few months while judicial foreclosure can take more than a year.
Homeowners who aren't sure which process is right for them should work with an expert.
The Foreclosure Process Is Different in Each State
Each state has its own laws for the foreclosure process. A homeowner who is familiar with the foreclosure process in one state may not be familiar with the process in another state. Some of the differences that vary between states include the notices a lender must post publicly, the homeowner's options for avoiding foreclosure, and the amount of time to sell the property.
In 22 states in the United States, judicial foreclosure is the default form of foreclosure while in the other states, non-judicial foreclosure is the default. With either option, homeowners must communicate with their bank and take a proactive stance in order to avoid foreclosure.
North and South Carolina Foreclosure Process
The foreclosure process is different in North and South Carolina. If a homeowner is experiencing foreclosure in one of these states, the following information can help.
North Carolina is a non-judicial foreclosure state. Unless the homeowner sues the lender, the process is likely to proceed outside of court. By law, the lender is generally required to wait until the homeowner is 120 days late on their payments before the lender can begin pre-foreclosure proceedings, which gives the homeowner time to catch up on their payments, if possible.
The next step is a pre-foreclosure notice, which must be sent to the homeowner at least 45 days before the notice of hearing in foreclosure proceedings. The information on the pre-foreclosure notice includes the amount due and information for a housing counselor who can help the homeowner through the foreclosure process.
After the pre-foreclosure notice, the lender must send a notice of default and notice of hearing. The notice of sale must be sent to the homeowner in addition to being posted somewhere public.
South Carolina is a judicial foreclosure state. The first proceedings begin when the mortgage is 120 days delinquent. Homeowners in South Carolina have access to foreclosure intervention, and lenders must serve homeowners with a notice that alerts them they have access to this.
The homeowner has 30 days to respond; if they do not, then the foreclosure can proceed. If the homeowner chooses to take advantage of foreclosure intervention, then they may discover a way to prevent the foreclosure from takng place. If the intervention doesn't work, however, the process moves to hearing and judgement; once this is completed, the lender may sell the property.
While foreclosure in North and South Carolina can be very different, the most important action is for the homeowner to seek a means for help through a housing counselor. By working with an expert, the homeowner is more likely to find a way to prevent the process from moving forward.
Phases of Foreclosure
Regardless of what state the homeowner lives in, there are generally six phases of foreclosure. The earlier the homeowner chooses to contact the lender and start exploring options to stay in their home, the more likely it is that the homeowner will be able to avoid foreclosure. The six phases of foreclosure include:
- Payment Default
- Notice of Default
- Notice of a Trustee's Sale
- Trustee's Sale
- Real Estate Owned
If a homeowner has begun the proceedings of foreclosure, it's important for them to track each phase to strategize for the future.
Phase 1: Payment Default
Payment default occurs after the homeowner misses their first payment. Homeowners cannot miss a single mortgage payment without this clock beginning. At this stage, lenders usually want to find a solution to keep the homeowner in the home. Often, lenders will work with homeowners to help the homeowner catch up on payments.
In some cases, if payment default occurs because of a widespread problem, such as a natural disaster, then the homeowner will have access to forebearance and other options. Homeowners who believe they may have a hard time making their payments should contact their lender before missing a payment.
Phase 2: Notice of Default
A Notice of Default (NOD) is a notice sent to a homeowner 90 to 180 days after they have defaulted on their mortgage. Once the notice of default is sent, the homeowner will often have a specific period to catch up on their payments, or the foreclosure process will proceed. The Notice of Default is the lender's first action in the foreclosure process.
Phase 3: Notice of Sale
The Notice of Sale is the next step if the homeowner is unable to catch up with payments in the specified period of time. If the homeowner is able to catch up with the payments, then the process stops before the notice of sale can ever occur. A notice of trustee sale is recorded in the county where the homeowner lives and is generally published in the local newspaper. The notice of sale alerts other homeowners in the area that home may soon go up for sale. The name of the owner and a description of the property is included in the notice of sale.
Phase 4: Trustee's Sale
Homeowners are able to catch up with payments right until the very end of the foreclosure process. If the homeowner is unable to catch up with payments, then the trustee sale will go through. Trustee sale occurs in a public auction; as soon as the sale of the foreclosure is complete, the new owner may take possession of the house immediately.
Phase 5: Real Estate Owned
If the foreclosed home doesn't sell, then the home may become owned by the bank, or "real estate owned." The bank may remove liens to make the home more attractive to buyers. Many banks sell their home through a real estate broker that helps manage the sale.
Phase 6: Eviction
Generally speaking, the homeowner can stay in the home until it is sold, when they will recieve an eviction notice alerting them to move out. Some states allow homeowners to either buy back their home or live in their home for free for a period after foreclosure, which provides time for the homeowner to start saving money, paying bills and rebuilding their credit. Once the home has been sold and the eviction period begins, this will also take some time. Eviction varies by state, with some states taking longer to complete than others.
Work With an Expert
If you're a homeowner who is facing foreclosure, work with an expert who understands the process. Receiving advice from a professional can help make the situation less stressful. In some cases, homeowners may even be able to receive help that can reverse the foreclosure process.
Working with an expert makes the foreclosure process better overall. For more information about foreclosure, contact an expert today.