The Complete Foreclosure Process
While specific foreclosure laws vary from state to state, the basic foreclosure process is easy and beneficial to understand for anyone involved with the real estate industry. A basic foreclosure begins when a property owner fails to make principal and/or interest payments, after which, their property can be seized and sold. The foreclosure process can take more than six months to complete—during which the homeowner has several opportunities to bring the loan current—before the property is ultimately brought to auction. The vital documents, proceedings, and general framework of the foreclosure process are outlined below, beginning with the homeowner’s default and ending in a Trustee Sale.
The Stages of the Foreclosure Process
In accordance with the County Recorder’s Office, a Notice of Default (NOD) is issued by the lender to the homeowner after three to six months of missed payments. This document alerts the borrowing party that they are facing foreclosure. After the NOD is delivered, the borrower is entered into a reinstatement period: a five day period during which a default may be reinstated or cured. Should a loan default not be corrected, a foreclosure sale date will be established within three months.
In the event of a foreclosure sale, a Notice of Sale is delivered to the homeowner and placed on the property. The notice gives specific information about the defaulting loan in addition to detailing the remainder of the foreclosure process. A copy of the notice is kept at the County Recorder’s Office in the county of the foreclosing property and is published in local newspapers in accordance with state law. The Notice of Sale also gives the time and location designated for the foreclosure Trustee.
The Trustee Sale
A Trustee Sale (or Sheriff’s Sale) is a public auction in which the property is sold to the highest bidder. Sales must be paid in cash within twenty-four hours, including a sizable initial deposit determined by the state. Sales typically take place at the county courthouse in the county where the property is located. After the auction and sale are completed, the new property owner is awarded the trustee’s deed to the property. When a property is purchased at a foreclosure sale, all junior liens (besides property taxes) are remedied.
While the aforementioned outlines the basic aspects of the foreclosure process, specific details often vary from state to state. Aspects such as foreclosure timeline, rights of redemption (the original homeowner’s right to reclaim property during the foreclosure process), availability of judicial foreclosure (a court order available to unpaid lenders which effectively terminates any equitable rights of redemption), and the possible availability of any deficiency judgments (a judgment against the borrower in the event a mortgage foreclosure sale did not produce enough funds to sufficiently to pay the initial promissory note or loan). Knowing local state laws and regulations can help potential auction participants decide which states they decide to do business in, as these laws can significantly affect initial costs and any eventual profits resulting from participating in the foreclosure process.
