Mortgage Modification, short sale, or foreclosure?

Millions of Americans are learning about the foreclosure process for the first time – up close and personal. If that describes you, you’ll want to become prepared for how the process works, how you’ll be treated, and what your options and protections will be. I hope this brief overview of the process will help.

When foreclosure ends in repossession of the property by the bank, your credit report is stained by that “F” for 7 years. It’s truly the “F” word on your credit report and should be avoided at all costs. No other stain on your credit report does as much damage for as long. Part of the reason for this is that it’s actually very easy to avoid. The process provides for your protection during a prolonged period during which you should be able to resolve the issues.

Non-Judicial

In the 34 states that use Trust Deed instead of mortgages, like California, virtually all purchases involve three parties; the trustor (borrower), the beneficiary (lender), and the trustee (neutral third party receiving the right to foreclose). The trust deed includes a “power of sale” clause that gives the trustee the right to enforce collection of the debt. Collection of the debt is ultimately enforced by the beneficiary’s right to sell the house when the borrower fails to make the agreed upon payments.

Defaults of as little as 30 days can initiate the process, although 90 days is typical – and longer as the housing slump has deepened. Once the house is either sold at auction or “taken back” by the lender, the former owner must vacate at the discretion of the new owner.

In a non-judicial foreclosure, the trustee must meet few requirements before selling the property. In comparison to a judicial foreclosure, non-judicial foreclosure is quick because the trustee doesn’t need to obtain a court order to foreclose, nor is court supervision required to sell the property.

In California, the timeline of non-judicial foreclosure begins when the trustee files an NOD (notice of default). This letter is sent to the owner notifying them of the default of the loan. This notifies the owner of the lenders’ intent to exercise their right to collect on the debt. The copy of the notice is usually recorded at the County Recorder’s Office and mailed to the address of notice as per the trust deed.

The next step is the filing of the Notice of Trustee Sale. No sooner than ninety (90) days after the trustee records the Notice of Default, the Trustee must publish a Notice of Trustee Sale in the local paper and simultaneously file that notice with the County Recorder’s Office.

No sooner than twenty days (20) after the Notice of Trustee Sale is filed, the home may be sold at public auction for the amount of the debt plus foreclosure costs. If no one bids at the auction, the lender assumes ownership of the property as a “Real Estate Owned” asset or REO.

Timeline for a Non-Judicial Foreclosure: 5-7 months or more

Judicial

Judicial foreclosures are more complex and, therefore, take longer. States that use judicial foreclosure include: Arizona, Alaska, Delaware, Connecticut, Colorado, Florida, Louisiana, Kentucky, Kansas, Iowa, Indiana, Illinois, Maryland, Minnesota, Michigan, Nebraska, New York, New Mexico, New jersey, Ohio, North Dakota, Pennsylvania, South Carolina, Rhode Island, Vermont , Utah and Wisconsin.

Judicial foreclosures are processed through the courts, beginning with the lender filing a complaint and recording a notice of Lis Pendens (notice that a suit’s pending and title is “clouded”). The complaint will state what the debt is, and why the default should allow the lender to foreclose and take the property given as security.

If the court finds the debt valid, and in default, it issues a judgment for the total amount owed, including the costs of the foreclosure process. After the judgment has been entered, a writ is issued by the court authorizing a sheriff’s sale. The sheriff’s sale is an auction, open to anyone, and is held in a public place, usually the courthouse steps. Sheriff’s sales will require either cash to be paid at the time of sale, or a substantial deposit, with the balance paid from later that same day up to 30 days after the sale. After the court has confirmed the sale, a sheriff’s deed is recorded and the highest bidder is the new owner.

Judicial states with notoriously long foreclosure times include Vermont (210 days), Florida (180 days), Nebraska (180 days), and New York (12-19 months!).

Timeline for a Judicial Foreclosure: 6 – 19 months

You can see how long it usually takes in your state at Foreclosures.com. Just click on your home state.

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