5 things you should know about Foreclosure

June 20, 2017 | Iulia Zecheru

When searching for a house, you will see this term “foreclosure” a lot and you might be wondering what does is mean. Here are 5 things you should know about foreclosure.
Foreclosure is a legal process that a lender starts when the owner of a house stops paying the mortgage. The lender is forcing the sale of the property used as the collateral for the loan to collect the debt from the proceeds of a forced sale. The lender may have other reasons to declare a default and foreclose: illegal use of the property, failure to maintain the property or to keep the property insured. The foreclosure process can be judicial or nonjudicial. The most common foreclosure process is the nonjudicial one because is faster and it doesn’t require to go through court. Also, to foreclose nonjudicially, the lender doesn’t have to file a lawsuit or get a decree of foreclosure from a judge.

The nonjudicial foreclosure process requires some steps that need to be followed:

1. The lender will send a Notice of Default (NOD) to the owner and to all lienholders after a few missed payments. This Notice of Default will be recorded in the county where the property is located.
2. 3 months and 20 days after the NOD has been sent a Notice of sale will be recorded and posted on the property and local newspapers.
3. The lender asks the trustee to sell the property as trustee’s sale, only if the security instrument (mortgage or deed of trust) contains a power of sale clause.
4. The right to Reinstatement – the owner has this right to reinstate the loan and stop the foreclosure process any time up to 5 days before the trustee’s sale. The loan will be reinstated by paying all past-due installments, plus costs and fees.
5. There is no statutory right of redemption for the owner after the trustee’s sale.

From a lender’s point of view, the nonjudicial foreclosure gives them better advantages over the judicial foreclosure: it’s faster and the trustee’s sale is final. But it also has a disadvantage because there’s no right to a deficiency judgment after the trustee’s sale. If the proceeds are not enough to cover the debt, the lender can’t sue the borrower to recover the loss.

Buyers