If you are someone who is falling behind on your mortgage payment and fear that you may lose your home to foreclosure there are certain things that you should know about how foreclosures work and what a lender needs to do to repossess a home.

Every state has different laws that apply to foreclosures and each of these states has a unique system of regulatory policies that spell out exactly how a bank can take back a home from a defaulting mortgage borrower. As always when considering a legal question the reader is advised to seek out specific legal guidance from appropriately licensed advisors or attorneys who can consult on a specific situation. Some states offer one foreclosure system or the other, and some provide for the possibility for either to be used.

What is a Judicial Foreclosure?

A judicial foreclosure is where a lender who has not been paid on a loan secured by a home files a complaint in court. This is a ‘lawsuit’ situation where the lender makes its case to a judge as to why it should be allowed to take back the property from the homeowner. At the time of filing a ‘lis pendens’ is usually filed to give other people notice that the house is the subject of foreclosure proceedings.

If the court agrees with the lender that the house should be sold to satisfy the debt, then the house is ordered sold at an auction. There may be additional rights of redemption available to the homeowner for a time period after the house has been declared forfeit for some time, and a homeowner should do careful research if their intent is to redeem the house.

In states like California (see below) if a lender wants to sue for a ‘deficiency judgment’ (suing the homeowner for the full amount owed on a house above and beyond its current fair market value) then they must use the judicial foreclosure process. There are many intricacies to this process that an experienced attorney can help you understand if you lender should choose to file this type of legal proceeding.

What is a Non-Judicial Foreclosure? (AKA Trustee’s Sale)

Some states like California are known as “Deed of Trust” states that allow for ‘power-of-sale’ foreclosures. This bypasses a court and the lender lets the defaulting borrower know via mail that they are in default and they simultaneously file a ‘Notice of Default’ (NOD) with the County Recorder’s office. After this there is usually a ‘period of redemption’ in which the homeowner can pay the past due amounts plus penalties assessed by the lender in accordance with the loan documents provisions.

In California this period is 3 months. An additional 21 days notice period is provided to the homeowner at the end of the 3 months before the house may be sold at auction, usually on the steps of the county courthouse.

Some states have different ‘redemption periods’ and some require different types of notice. This non-judicial foreclosure process usually only lets the lender take back the house and precludes the possibility of obtaining a deficiency judgment against the homeowner.

Get help to avoid foreclosure

If you’re facing the prospect of losing your home because you cannot afford to make the payments on it for any number of reasons there are many things you can do to help yourself. First of all, you should talk to your lender honestly and explain to them what is happening in your financial life that really prevents you from making your payments. You may be able to get the lender to agree to a ‘short-sale’ in which they agree to allow the house to be sold for less than what it is worth, or they may offer you a repayment program that will allow you to correct the financial shortfalls over time.

Other options that may help you include selling your house via a real estate agent or directly to a real estate investor.

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There are more reasons to understand the foreclosure process in the US than ever before. In September, 2008 alone there were 81,312 homes that were lost to foreclosure. The 3rd quarter of 2008 showed a 71% spike in foreclosure rates as compared to last year at this time. These are record-high numbers and it should be obvious that lenders do not want this trend to continue. Still, the fact remains that over 851,000 homes have been repossessed since August of 2007. The housing crisis in America is smothering homeowners – along with the rising costs associated with fuel. People are being financially crippled and hundreds of thousands are falling under every day.

In September, 2008 there were over 265 thousand borrowers that received notifications of foreclosures. Although that number is down 12 percent from August, it is still a 21 percent increase from one year ago. Many times in the past have shown foreclosures to be a result of a weakened economy. This current cycle of foreclosures has in fact caused an economic downturn.

As a result, many states have relaxed their housing laws to slow the rate of new foreclosure filings. This accounts largely for the 12% decrease from August to September. Lenders are now being required to give significantly more lenient notices before initiating the foreclosure process against borrowers. Other law changes are being made as well in favor of the borrowers, but financial analysts fear that even these new relaxed laws are simply putting off what will soon happen anyway.

The effect seems to be that when borrowers receive a longer-term notice before the foreclosure process is initiated, they simply seem to get further buried in their debt. With each passing month, mortgage payments, late fees and costs associated with the foreclosure process continue to mount, and the borrowers are simply overwhelmed. They cannot catch up and so after the notification period extinguishes, foreclosure rates spike again.The FHA initiated the “Hope for Homeowners” rescue bill on October 1, 2008. It was designed to re-instill investor confidence and absorb some of the poisonous debt that has accumulated. The US Treasury is also buying up troubled loans in an attempt to re-stabilize the various lending entities. As a result, it is projected that by the end of 2008, between 25% and 33% of all homes will be owned by banks and backed by the Federal Housing Authority.

The new laws in many states concerning the foreclosure process give temporary reprieve to tens of thousands of borrowers. It is highly advisable to take advantage of this leniency if you are one of those who are threatened with foreclosure. Consult with a qualified foreclosure consultant and explore the options that exist for saving your home. Many times, a professional foreclosure consultant can show you ways to have the foreclosure process negated and allow you and your family to stay in your home.

To learn more about the foreclosure process and your rights regarding it, please visit us at Stop Foreclosure Help Today. We can help you to keep the home that you have worked so hard for.

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