The Mortgage Foreclosure Process: What to Expect

Foreclosure Laws Differ Across States

Foreclosure laws vary from state to state. In some states, a lender may foreclose without going to court (these are called a “power of sale,” “foreclosure by advertisement,” or “trustee sale” states; some require court action (these are often referred to as judicial foreclosure states). In either of these types of foreclosure, an official sells the property at an auction after the mortgagee meets some procedural requirements.

Some states have a procedure called “strict foreclosure,” in which a court calculates the amount the borrower owes and give the borrower a deadline to pay that amount. If the borrower does not pay by the deadline, the mortgagor gets the property without an auction. In some states the lender can choose between these methods.

Figure 1: Types of Foreclosure Procedures by State and Estimated Timeframe from First Missed Payment to Lender Receiving Title to Property

Source of data:“MGIC FlexClaim Simplified State Time Frames” May, 2008

Acceleration of the Mortgage Debt

Despite the differences among the processes, most foreclosures follow a basic outline. First, the lender must give you written notice of any defaults, and some time to cure them. (See Mortgage Foreclosures). This notice is a prerequisite to the next step, which is acceleration. You pay your mortgage in installments. If the lender did not accelerate the debt (call the note due and demand payment of the entire balance), it would be difficult for them to recover more than any payments that were due by the time the foreclosure took place. Acceleration permits the lender to declare the whole balance due and demand payment. Your note and mortgage will give the conditions under which the mortgagor can accelerate the debt and foreclose. The mortgagor must comply with those requirements

Judicial Foreclosure or Power of Sale

After the lender gives notice and accelerates the debt, the lender will take the legal steps required to recover the property. The best time to try to work something out with the lender is when the notice of default arrives, or even before that. That is why it is important to open and read all of the notices and letters the lender sends. If you ignore them, you miss out on an opportunity to avoid foreclosure.

The next step depends on whether the lender is proceeding judicially or by power of sale. In a foreclosure under a power of sale, the lender is usually required to post a notice (often at the property) and advertise the sale. In a judicial foreclosure, the lender files a lawsuit and must serve the borrower with a summons and complaint; after the lender serves the complaint, the borrower has a period of time in which to respond to the complaint, but the available defenses are very limited. You cannot avoid foreclosure by explaining to the court why you were unable to make your payments. The only real defenses are that you really did pay, or that the debt is invalid. At this point, the matter is in the hands of a lawyer, and you’ll have to contact the lawyer to work out a settlement.

The Auction

In just about all kinds of foreclosure, the next step is to schedule the auction. The sheriff or a court official usually conducts the auction. In most cases, the lender bids on the property and acquires title for itself. If the sale price is less than the mortgage balance, the difference is called a deficiency. The lender can sometimes get a judgment against the borrower for the deficiency, but they often don’t bother.

The Redemption Period

Some states have a redemption period during which the borrower can regain title to the property by paying the purchase price plus costs and interest to the person who acquired the property at the auction. In states with redemption rights, you have some additional time to try to reach a repayment arrangement with your lender or save up a deposit for an apartment.

When to Leave the Property

Generally, you don’t have to leave the property until a court orders you to do so. This usually requires a separate lawsuit against the borrower. These cases are often filed in the same courts that handle eviction cases. While you can hold out until the sheriff comes to set you out, it’s a better idea to move sooner. For one thing, the new owner of the property can usually recover court costs and attorneys’ fees against you. For another, you’ll have short notice to find a place to stay, and if the sheriff sets you out, you and your belongings will literally be in the street.

Always consider consulting a lawyer in a foreclosure situation. Visit AttorneyPages to find a real estate attorney in your state who specializes in foreclosures.