What is Foreclosure Law?
Foreclosure law provides the means for a mortgage lender to take possession and sell a home when the borrower has defaulted on the loan. The money from the sale is used to pay off the balance of the loan, and the new buyer takes the home free of the mortgage. If the proceeds are not enough to pay off the loan, the borrower may be held personally liable for the difference, in addition to being forced out of the house. From the lender’s perspective, foreclosure is slow and expensive. Thus, the lender will usually be just as motivated as the borrower to see that the loan is paid on time and foreclosure does not become necessary.
To understand foreclosure law, it helps to consider the nature of a mortgage. Mortgages are used when potential homebuyers seek to borrow purchase money, or when homeowners with equity in their property want to borrow cash to make home improvements or for other purposes. In either case, a bank lends the money, and requires the borrower to sign a mortgage document giving the bank a security interest in the home. In other words, the home becomes collateral for the loan. If the borrower stops making the loan payments, the bank can take the collateral through the process of foreclosure.
Stopping Foreclosure and Keeping Your Home
The foreclosure process is handled differently in each state, but the end result is the same – the borrower loses all rights to the home. For borrowers with the desire and the means to stop the process, several options are available that will allow them to retain possession of the property. To begin with, prior to the time the bank sells the home at a foreclosure sale, borrowers always have the option of paying the full balance of the loan. This will extinguish the mortgage and the borrower will own the home free and clear. It may also be possible to pay only the missed payments and any penalties, thereby reinstating the defaulted loan and stopping the foreclosure.
Of course, borrowers facing foreclosure came to be in that situation for a reason, and likely do not have the funds to bring the loan current or pay it off altogether. These people may still be able to keep their home through forbearance. Forbearance means the lender agrees to suspend payments for a period of time. This can be useful to a borrower who is temporarily out of work, but it will not reduce the principal balance or avoid penalties and fees associated with the delinquency.
Loan modifications are another way for distressed homeowners to keep their property. A modification involves the lender agreeing to change the terms of the loan to make it more affordable for the borrower. These changes are permanent, and usually involve lowering the monthly payment amount by extending the length of the repayment period. In some cases, borrowers may even be eligible for a reduction in the principle balance of the loan. A number of government programs, including the federal Home Affordable Modification Program (HAMP), exist to aid borrowers by subsidizing modifications that meet certain criteria.
Options for Those Willing to Surrender their Home
In some situations, borrowers will not want to keep their home. This is often the case when the home is “upside down,” meaning the outstanding loan balance is greater than the market value of the property. Confronted with loan payments they know they can never afford, borrowers may simply be looking for a way to hand over the keys to the bank and walk away from the property. The best option for these people is usually a deed in lieu of foreclosure. Basically, the borrower signs over all interest in the home to the lender, in exchange for the lender ceasing the foreclosure process.
The Importance of Avoiding Default Judgment
While a deed in lieu of foreclosure can be an efficient way for a homeowner to leave a troubled home loan behind and start over, it presents the possibility of a deficiency judgment. This can be a dangerous trap for borrowers who are not familiar with foreclosure law or do not have an attorney to represent them. A deficiency judgment refers to the personal liability of a borrower for the unpaid balance of a home loan, even after the home has been foreclosed and sold.
Besides taking a security interest in the home, mortgage lenders require borrowers to sign a personal guarantee. This way, if the foreclosure sale does not bring in enough to satisfy the loan, the rest can still be collected from the borrower personally. For borrowers, this represents a worst case scenario, as they will continue to owe money even after the home has been lost. Fortunately, borrowers who hire an attorney to negotiate a deed in lieu of foreclosure will almost always succeed in getting the bank to waive its right to a deficiency judgment as part of the deal.
Retaining a Foreclosure Defense Attorney
If you are struggling to pay your mortgage, the best thing you can do is contact a foreclosure attorney. An attorney may be able to defend the foreclosure by finding discrepancies in the loan documents or other aspects of the bank’s case. To learn more about your options, schedule a consultation right away.
Know Your Rights!
- Top Mistakes Made in Foreclosures
Mortgage foreclosure is the process by which the bank takes your home for not paying your loan. Here are 10 common mistakes people make during a mortgage foreclosure.
Articles About Foreclosure
- How to Fight a Post-Foreclosure Deficiency Judgment in FloridaEven with the national economy and housing market on the upswing, Florida continues to have one of the highest rates of foreclosure in the U.S.
- Distressed Homeowners: Know Your Rights Under the Florida Fair Foreclosure ActFlorida was among the hardest hit states in the national housing crisis, and state courts are still dealing with the flood of foreclosures crowding dockets. In 2013, the Florida Fair Foreclosure Act (“FFFA”) was signed into law in attempt to unclog the court system with an expedited foreclosure process that both hurts and helps distressed homeowners.
- Ways to Stop ForeclosureThere are several ways that homeowners can help guard against foreclosure so that they can keep their homes and avoid the negative consequences of this action.
- Rights of California Renters when the Property Is SoldIn some situations, California landlords decide to rent out their properties until they are able to find a buyer. When a unit is sold that is occupied by a renter in California, the renter still has many tenant rights that must be honored and respected. Simply selling the property does not usually justify an immediate eviction of a tenant.
- Can You Recover from Bankruptcy and ForeclosureFormer homeowners who have been foreclosed on have to go through an entire year of loss after loss. First, they lose their home and have to relocate. Next, they have to figure out how to re-establish credit because they have lost their once good credit rating. Then, as homeowners attempt to put this behind them, they go to the mailbox and receive a 1099. A 1099A or 1099C is issued by the creditor for the abandonment or cancellation of debt.
- Forming an LLC to Purchase Real EstateLimited liability companies (“LLCs”) are the entity of choice for most transactions involving the purchase and/or development of real estate. There are many situations in which another entity may be used, as, for instance, when a company owns various assets, only one of which is real estate. Still, LLCs predominate.
- Avoiding Foreclosure and Eviction without an Attorney in CaliforniaForeclosure is a scary, cumbersome process that often renders homeowners desperate for help, and all too often they call upon unqualified, or unethical, self-proclaimed foreclosure defense attorneys or advocates.
- Notice of Assignment of Mortgage before Suit Is Not a Defense to Foreclosure in FloridaRecently foreclosure defense attorneys have argued that FL Stat. 559.715 is a condition precedent to foreclosure and a defense to foreclosure. Recently the 2nd DCA finally rules on the issue and held otherwise.
- Can Storage Companies Remove My Belongings?When a person has more belongings than he or she can comfortably store in a home, he or she may take extra belongings to an off-site storage company. The circumstances about which the storage company can remove belongings are based on state law and the specific contract.
- What Are the Advantages and Disadvantages of Joint Tenancy?Joint tenancy is one type of concurrent ownership in which two or more individuals own the property simultaneously. Joint tenancy provides a number of benefits to co-owners. However, it also poses certain risks.
- All Real Estate Law Articles
State Foreclosure Laws
Foreclosure Law - US
- Federal Housing Administration
The Federal Housing Administration, generally known as "FHA", is the largest government insurer of mortgages in the world.
- Helping Families Save Their Homes Act of 2009
The Helping Families Save Their Homes Act of 2009 (H.R. 1106 or S. 896) is a recently enacted public law in the United States.
- Homeowner Affordability and Stability Plan - US Treasury Dept
On February 18, 2009, President Obama announced a comprehensive plan to help responsible homeowners avoid foreclosure by providing affordable and sustainable mortgage loans.
- Mortgage Forgiveness Debt Relief Act and Debt Cancellation - IRS
- National Fair Housing Policy and Equal Opportunity - HUD
- Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA), enforced by the Consumer Financial Protection Bureau (CFPB) insures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices.
- Statement of Policy on Foreclosure Consent and Redemption Rights - FDIC
- Truth in Lending Act (TILA)
- US Department of Housing and Urban Development (HUD)
Organizations For Foreclosure Law
- Department of Veterans Affairs - Avoiding Foreclosure
- Federal Reserve Banks - Foreclosure Resource Centers
- Foreclosure Prevention - FDIC
- Foreclosure Rescue and Loan Modification Scams
- Foreclosure Rescue Scams - Consumer Protection - FTC
- HUD Approved Housing Counseling Agencies
- Making Home Affordable Program
- National Low Income Housing Coalition
- Office of Policy Development and Research (PD&R)