In this article, we’ll give you an overview of foreclosure, discuss the before and after of a foreclosure sale, and give you valuable information about foreclosure timelines so you can get a better idea of how long you can stay in your home while planning your eventual move.
Moving takes a lot of effort, and if your house is in foreclosure you may be wondering how much time you have before you must move. Your time frame will depend on what type of foreclosure you’re facing and whether you have filed for bankruptcy. Bankruptcy can help you during foreclosure by giving you time to take control of your debt. In this article, we’ll give you an overview of foreclosure, discuss the before and after of a foreclosure sale, and give you valuable information about foreclosure timelines so you can get a better idea of how long you can stay in your home while planning your eventual move.
What Is Foreclosure?
The legal process a mortgage provider takes to regain possession of a property after nonpayment of mortgage debt is called a foreclosure. Generally, foreclosure is a legal proceeding that enforces a mortgage, lien, or trust deed. Federal laws and state laws dictate the process for a foreclosure, but federal law states your loan must be 120 days past due before the state foreclosure process can start.
Mortgages are secured loans with collateral. That means, to fully own your house, you must make the agreed-upon payments to the mortgage servicer. If you don’t, then you lose your rights to the real estate. The FDIC reports that 1 in every 200 people face foreclosure, so you’re not alone in your struggles.
Note that a mortgage forbearance option is available through the CARES Act as a response to the coronavirus pandemic. Through this option, federally backed mortgage loans can benefit from a 180-day pause, but mortgage holders will still owe all payments at the end of the pause. If you’re behind on your mortgage payments and the foreclosure process hasn’t started, consider looking into this option and/or calling your lender to ask for a loan modification.
If you’re unable to obtain a loan modification or a forbearance because the foreclosure process has already begun, it’s important to understand the kind of foreclosure process you’re dealing with. There are judicial foreclosures and nonjudicial foreclosures. A judicial foreclosure is a foreclosure proceeding that goes through the court, while a nonjudicial foreclosure doesn’t use the courts as the primary vehicle for foreclosure.
States have different foreclosure laws, so your foreclosure proceeding in Kansas may not be the same as the process for your aunt in California. The details of your mortgage contract will also affect the way your foreclosure is handled. Many mortgage contracts contain a clause allowing a nonjudicial foreclosure to proceed using a trustee to manage the process.
The two foreclosure notices that signify the start of a nonjudicial foreclosure process are a Notice of Default and Notice of Sale. Many states have laws that require a Notice of Default, Notice of Sale, or both, to be filed with the county recorder’s office to give public notice that a property is undergoing the foreclosure procedure. People can learn about foreclosure through public records.
A judicial foreclosure is a much longer process that requires the mortgage company to sue you before they can proceed with a foreclosure action. You’ll be served a summons and complaint and will have to answer that summons and complaint. Judicial foreclosures are best handled by a law firm. If you ignore the summons and complaint, you’ll be in default and the foreclosure will happen faster. With a judicial foreclosure, a court order is required for a property to be put into a foreclosure sale.
How Does a Foreclosure Sale Work?
The foreclosure sale process starts with a notice that a home is entering a foreclosure proceeding. If your state allows nonjudicial foreclosures, the loan company must place a public notice in the paper and mail you a notice about the foreclosure action. When a judicial foreclosure starts, you’ll get sued, but the legal notices can be tacked on your door and you will be sent a copy of the documents through certified mail.
If the property is being sold at an auction, a public notice is often published in the newspaper. This requirement is based on state law. A sheriff will likely conduct the sale, and the foreclosed property will be sold to the highest bidder.
Every state allows you to pay off the foreclosure debt before the sale of the property. If you can pay your debt off in full (plus the costs of the foreclosure proceeding) before the foreclosure sale, you can “redeem” your home before it’s sold at a foreclosure sale.
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What Happens After a Foreclosure Sale?
At least 15 states allow for a “redemption period” after a foreclosure, while a few states allow redemption under certain circumstances, and many states don’t offer a redemption period. That's why it’s important to determine what your state’s process is so that you know what to expect. A redemption period is a set time under the law in which you can pay the debt, plus costs, to regain the legal right to your property. This is sometimes called the “statutory period of redemption.” If you file bankruptcy, any redemption period available to you can be extended for 60 days.
Generally, after a sale of a foreclosed home, a sheriff eventually evicts the former homeowners after a specific period of time. There is a formal procedure for eviction. As a result, the new owner of the house can’t simply just put cash down to buy the foreclosure property then waltz in the house to install new locks.
For example, in California, the new owner must give you a three-day notice telling you to move. After those three days, an eviction proceeding must go through the courts and you’ll be served a summons and complaint. After being formally served, you have a chance to respond to the claim and a right to trial. In California, that time to respond might only be 5 days, but there must be a court order before the locks may be changed on a foreclosed house.
The speed of formal eviction proceedings after a sheriff’s sale of a foreclosed home is determined by state laws, and some states process evictions faster than others. Some single-family homeowners will be able to postpone eviction because of Covid-19-related holds on evictions. According to the Federal Housing Finance Agency (FHFA), certain Fannie Mae and Freddie Mac mortgage loan homeowners now benefit from a hold on evictions and foreclosures until at least August 31, 2020.
Often, a mortgage company will buy the property at a foreclosure sale. Sometimes, it’s possible to get permission from the mortgage lender to pay rent on the house until you’re able to move out. Freddie Mac and Fannie Mae have previously announced such possibilities. In rare instances, a mortgage company might give you cash as an incentive to move out and hand over the keys.
Can a Bankruptcy Keep Me in the House Longer?
If your house is in foreclosure, bankruptcy can help you live in your house longer. The addition of time to your foreclosure timeline depends on when you file your bankruptcy petition and how far your foreclosure process has advanced. When you file a bankruptcy petition, you will benefit from the protections of an automatic stay. That means that a stop is put in place on all collection activity, including foreclosures, generally until the bankruptcy case is resolved.
If you file bankruptcy after an eviction notice has been served, you can add 30 more days to your foreclosure timeline. By contrast, if you file bankruptcy after the foreclosure sale, but before the eviction, your eviction will be put on hold when you file your bankruptcy petition because of the automatic stay.
Foreclosures are not uncommon. The Mortgage Bankers Association has said that almost a quarter-million homes go into foreclosure every three months. This number is sure to increase from the economic effects of the Covid-19 pandemic. How long you can stay in your home after a foreclosure sale will depend on your state laws. Filing bankruptcy before you’re served with an eviction notice will give you extra time to manage your debt and prepare for your move. It’s always best to talk to an attorney about bankruptcy and state foreclosure laws. If you can’t afford an attorney, you can file bankruptcy on your own with Upsolve’s free online tool so that you can move into a new home with a clean slate and get a fresh start in life.