Decoding a Foreclosure: Terms and Definitions.
Familiarize yourself with some key terms and processes that are involved in Foreclosures. This post will walk you through the process and decode the legal terminology along the way.
DELINQUENCY: Once you miss a payment, the loan will become delinquent on the day after a payment due date. Often times there is a grace period (typically until the 16th on all FHA loans).
DEFAULT: Once a payment has been delinquent (unpaid) for more than 30 days, the loan is in Default. At this point the Lender will often transfer the loan to another department in their company that deals with this type of thing.
FORECLOSURE: This usually refers to a loan file that Lenders have transferred to a separate internal department. This department will decide if/when they are going to pass the loan off to a law firm to collect (typically at an independent firm). When this happens the loan referred to as being in Foreclosure.
LEGAL WORK: Once your loan is transferred to an outside law firm, the borrower (the homeowner who can't pay the mortgage) is then responsible for the legal fees involved. This is called legal work. Totaling up to $2500 or more, these costs most be repaid in addition any late fees. Once paid, this can cure the loan and end the foreclosure.
PUBLIC TRUSTEE: If the loan is not cured, the attorneys will take about two-four weeks to prepare foreclosure documents. Once they are prepared, the next step is usually for a Lender to foreclose on a Deed of Trust (the legal rights to the house). In order to do this, they submit the foreclosure documents to the Public Trustee’s Office in the county where the property is located.
PUBLIC AUCTION: The will then Public Trustee review the foreclosure documents that the lender’s attorneys sent over. The Public Trustee has to record whats called a Notice of Election and Deman (NED) and then will schedule a public auction of the property 110-125 in the future.
INTENT TO CURE AND RIGHT TO CURE: In order to for a borrower (original home owner in default) to have a Right To Cure the loan, they need to file an Intent To Cure form with the Public Trustee's Office. Because it's the government, this form much be filed with the Public Trustee in the right county at least 15 days before the property is scheduled to go to auction.
CURE FIGURES: Once the Intent To Cure has been filed, the original borrower will be given the Cure Figures at least a week before the auction. Once these figures are given, the borrower has until noon the day before auction to submit funds to the Public Trustee's Office. These funds have to be paid in full, and in the form of cashier's check or other certified funds.
RULE 120 HEARING: The lender’s attorneys will need to schedule a Rule 120 Hearing to take place sometime prior to the auction date. This hearing is set up to establish whether or not the lender has the legal right to foreclose on the property, and sell It at a public auction to recoup their money. If the borrower does not officially respond, then Judge can cancel the entire hearing and sign the order allowing the sale to happen.
REDEMPTION PERIOD FOR JUNIOR LIEN HOLDERS: If the house is sold at a public auction, afterwards there is a short Redemption Period for Junior Leinholders. These are for other companies and people who had leins against the house. This would be for things like unpaid property taxes, unpaid insurance, and even unpaid construction in which a lien was placed against the house. These would be paid out with amount bid at auction plus other allowable fees.
DEFICIENCY JUDGMENT: Let's pretend the borrower owes $350,000 but the house only sells at public auction for $300,000. The borrower (original home owner who defaulted) could still owe the lender $50,000. However, if the borrower can convince a court that their home should have sold for more than what it did at the auction, then they may be issues a Deficiency Judgment. The Deficiency Judgment can excuse the additional debt, but if they don't get one the borrower will still be responsible for the remainder.
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