Staying in Your Home During and After Foreclosure

Receiving a foreclosure notice can inspire a state of panic. You might find some comfort in the fact that a foreclosure proceeding takes time. In this article, we’ll give you some insight into the foreclosure process so that you can get an idea of how long you can stay in your home during the foreclosure proceeding. After foreclosure, you’ll have the choice to move or wait until a sheriff evicts you, unless you choose to redeem your property. Keep reading to learn more about the foreclosure process and your options moving forward.

What Is Foreclosure?

A foreclosure is a legal process that mortgagors use to take back real estate promised to them by borrowers if mortgage obligations aren’t met. States each have different laws that govern local foreclosures.

Some states mandate that foreclosure proceedings go through the courts. This process is called a judicial foreclosure. Other states allow foreclosures to go through administrative proceedings that don’t require court involvement. This process is called a nonjudicial foreclosure. Most states favor the nonjudicial foreclosure process, and many states allow both judicial and non-judicial foreclosure proceedings. A foreclosure can take a few months or last for over a year. Generally, judicial foreclosures take longer than non-judicial foreclosures do.

Before the formal foreclosure process starts, you’ll get a reminder letter that your mortgage payment is overdue and a demand letter warning you that you’re in default. The demand letter will tell you how much you owe and how you can get out of default.

After these letters, the mortgage lender will send you a Notice of Default if you still haven’t become current with your mortgage payments. Under federal law, the foreclosure process can’t start until 120 days after the last missed payment, but — beyond that threshold — the timing will depend on your lender and your state’s laws.

Avoiding Foreclosure Through Loss Mitigation

If you know that you’re going to have difficulty making your monthly payments, call your mortgage company servicer and ask for a forbearance. This will let you postpone some payments, but you’ll have to make the payments later. Also, you can ask your lender about whether your state is offering alternative homeowner protections due to the Covid-19 pandemic. 

If you don’t qualify for a forbearance, you might be eligible for a loan modification. With this option, you might be able to work out a different monthly payment amount, a longer term, or a different interest rate. You could also make a loan modification to pay a little more each month for repayment of your past due amount. These options will be better for your credit report and credit score compared to a foreclosure or short sale.

You can also talk to your lender about a short sale. A short sale will allow you to sell your home for less than the amount owed. All of the sale profits will go to your lender. You’ll either have to pay the remaining amount owed (often referred to as a deficiency balance), or in some circumstances, the lender will forgive the amount owed.

The Foreclosure Proceeding Begins

The Notice of Default sent to a borrower pre-foreclosure is the formal warning that the lender is going to start a formal foreclosure action. If you receive a Notice of Default, you’ll still have time to catch up at this point, and in most cases, you’ll be legally allowed to stay in your house and on your property for the remainder of the foreclosure process. If your house is condemned, you will not be allowed to stay in the house for safety reasons.

The Notice of Default will contain the following:

• Contact information

• A description of the property

• A description of the default

• A description of what is needed to take care of the default

• The date by which the default must be resolved

The notice might tell you to “cure” the default. This just means that you have to find a solution to resolve the default or you’ll continue to risk foreclosure.

Some states allow 90 days to make up payments after the Notice of Default is served, and other states don’t. If you don’t catch up or renegotiate your payments, and you’re in a non-judicial foreclosure state, you might receive a Notice of Intent to Sell. Steps will be taken to sell your house at a public auction. If your mortgage default isn’t paid or resolved by making other repayment arrangements, you’ll receive a Notice of Sale and your house will go up for auction.

The Notice of Sale will have the date, time, and location of the public foreclosure auction on the notice. It is usually public information and could be recorded in a public government office or posted in a newspaper. Depending on what state you live in, you might have the option to redeem your home after the sale.

What Happens After Foreclosure?

You’ll still have options after the foreclosure process is completed, but these options will depend on your state’s laws. You can talk to an attorney to learn more about your state’s foreclosure laws or research the laws yourself. State foreclosure laws will give you an idea of how long you can stay in your home. After foreclosure, you’ll have the option to move, but you might also have these options:

• Remain as a tenant in your foreclosed home, or

• Voluntarily give up your home and clear your mortgage debt with a cash-for-keys deal.

Redemption

All states allow you a chance to redeem your home before the foreclosure sale. But, two states --Connecticut and Vermont--allow for strict foreclosure, which means that a lender can potentially get a court order to deny a homeowner a right of redemption under certain circumstances.

Some states have a redemption period after a house is sold. Different things can happen during the redemption period, depending on state law.

During the redemption period you may be allowed to:

• Repurchase your property

• Catch up on your back payments, including all the costs and fees the lender added throughout the foreclosure process

• Live on the property during the redemption period

The redemption period could last for 30 days, or it could last for a year. The amount of time will depend on whether your foreclosure is going through the judicial or non-judicial process. If you want to stay in your home as long as possible after foreclosure, be sure to look up your state’s redemption period and its applicable laws relating to your right to remain in your home. 

Eviction After a Foreclosure Sale

If the house is titled in your name, you own the house and cannot be evicted until the title is officially given to the new owner. Once the title is in the new owner’s name, you can be evicted.

If you receive a Notice to Quit, it’s a good time to move out, or your problems will be compounded. Depending on your state, you could have anywhere between three to 30 days to move out. If you don’t, a court eviction process will start. The Notice to Quit will tell you exactly when you have to move out after foreclosure.

If you don’t move out by the time listed on the Notice to Quit, the new owner can start a formal eviction process through the courts. This eviction process will be a public record, which means it will be more difficult for you to rent or receive a loan in the future. That will make it harder for you to get back on your feet.

To get a formal court order to evict you, there is a process defined in state law. An attorney can tell you about the particular requirements for your state. There may be certain conditions that apply to a loan from the Federal Housing Finance Agency (FHFA), certain Fannie Mae and Freddie Mac loans, or a Veteran’s loan due to the pandemic or new laws. You might even be able to reside in the home as a tenant.

In most cases, the first formal steps of eviction include receiving an eviction notice and then being served a summons and complaint that lists a trial date. There will be a certain amount of time by law to respond to the summons and complaint, and you must respond before the trial. If you don’t respond and don’t attend the trial, the lender will win by default. The court will order you to leave and order new locks to be put on the house.

Some lenders will make a cash for keys offer before initiating a formal eviction. A cash-for-keys agreement occurs when a lender pays the soon-to-be-evicted resident cash to move out instead of going through an expensive eviction proceeding. This type of foreclosure agreement is legal in every state, but state laws vary on who is allowed to make a cash-for-keys agreement. Talk to your lender or an attorney if you’re willing to move but don’t have the money to do so. A cash-for-key agreement could help you, the lender, and the new homeowner waiting to move in.

Let’s Summarize...

If a foreclosure process has just started, you’ll have some time to plan your next move. You’ll also have a few opportunities to catch up on payments, and you might even be able to buy your own house at a public foreclosure auction. After foreclosure, there’s a chance you could get some money to help you move with a cash-for-keys agreement. There’s also a chance that you’ll get a little more time in your home while the formal eviction process takes place. 

Don’t run and hide with your first foreclosure notice. Learn what options you have available. Feel secure staying in your home during the foreclosure process. You’ll have the time you need to plan your next move and make a fresh start until the foreclosure is finalized.