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5 Stages Of Judicial Foreclosure In Mortgage States
If you are not aware that there are basically two categories of forecloses, namely judicial and nonjudicial foreclosures, it’s time to learn that they occur in mortgage states and deed of trust states respectively.
Mortgage states simply refer to states where real estate loans are secured with mortgages while deed of trust states with deeds of trust.
This means that the stages, processes, and procedure for both types of foreclosure can vary.
Here are the stages of a judicial foreclosure.
A borrower becomes delinquent on a loan when he misses scheduled payment and that exceeds the grace period.
Because lenders prefer that borrowers continue to maintain a mortgage rather than start the process of foreclosure, the lender at this point is usually still magnanimous and give the borrower every chance to make things right.
When discussions, consultations, mediation, and negotiation fails, and the lender believes that there is a very high likelihood that the longer the situation drags on, the smaller the chance of getting their money back, the judicial foreclosure process officially commences.
2) Filing of lawsuit and documentation
The official paperwork of complaint is filed with the courts that initiates that foreclosure lawsuit.
After which the lender records a lis pendens with the county recorder that gives other parties notice of the lawsuit taking place.
The official status of process is labelled as a “lawsuit pending” on the property in question.
The reason why this is important is because it allows third parties who have an interest in the property to take appropriate legal actions to stake their claims on their interest.
At this point, the borrower still retain some rights and power. He can answer and appeal the complaint filed by the bank.
This can either stop the default judgment or buy himself more time by hindering the development of the process.
The simple act of filling an answer will slow down the whole process and delay proceeding by up to 30 days.
Allowing the homeowner time to seek alternative solutions… like seeking the assistance of an investor who wants to buy the property.
3) Meeting between both parties
Because everyone has a right to contest assertions by any parties in a free country, if a borrower has filed an answer with the court, with the aide of a real estate investor or without, a court hearing date will be formally scheduled.
This is when a judge will decide whether there is actually a default after hearing out both parties.
If it has come to this stage of the process, the decision that the lender has the right to proceed with foreclosure is the usually outcome of this hearing and a sale date is set.
This because lenders do not waste time on matters that they have no confidence in winning. Especially when it comes to an individual borrower.
If they have reason to believe that the judge might not decide things in their favor, the odds of them taking the case so far forward is minute.
In that case, they would probably be able to find a middleground with the borrower at an earlier stage.
Only under extraordinary circumstance will a borrower be able to prove that he has not defaulted on a loan when… he has…
4) Sheriff’s sale
The sheriff’s sale starts to be advertised to the general public up to 4 weeks before the actual auction date.
This is to provide ample time of interest parties to conduct due diligence on the property before bidding.
At the auction, the lender puts in the first bid amounting to the sum of total fees due and debt outstanding.
Interested parties with then go into a bidding war to outmaneuver each other to grab a piece of the action. This can be especially ferocious if the house is a particularly interesting property that is undervalued.
The buyer that emerge victorious in the auction will then be issued with a certificate of sale.
The nervous wait commences now.
5) Redemption period
The wait refers to the time period that any winning bidder has to go through hoping that the borrower does not redeem his property.
This is because almost all mortgage states requires that the borrower be granted a redemption period. And it can stretch for as long as 12 month in some regions.
During the redemption period, many states allow the borrower to actually sell his rights to redemption to a third party like an investor.
This can be a particularly attractive proposition for an investor of foreclosures as knowing the difference between the winning bid and the hidden value of the property can make the decision to step in much easier.
If the borrower knows that the house is worth more than what it has sold for at auction, he can also take proactive steps to find a buyer to pay a higher price.
This creates a win-win-win situation whereby the borrower gets the best price for the property, the lender get paid, and the investor gets a house below market price.
Should the borrower fail to activate his redemption rights during the redemption period, the buyer will obtain title to the property via a sheriff’s deed.