We at Landlord Station understand that facing foreclosure as a landlord is intimidating – and it’s even more so when you’re facing it without any information about foreclosure defense. We have therefore provided the following informational summary to help you find the answer to common questions and issues including “what is foreclosure?” and “how to stop foreclosure from happening.” This is only meant to serve you with information and should not be taken as legal advice. Foreclosure can be a complicated legal matter, so if you need legal advice, contact an experienced lawyer licensed to practice in the state in which the foreclosure is occurring.
In recent years, there has been a lot of problems and panic associated with foreclosure on properties of all kinds – including rental properties. Usually, the average consumer knows that foreclosure is a serious matter which involves getting behind on mortgage payments. But when it comes to the questions of exactly what is foreclosure and how might it affect you as a landlord in a rental agreement, not many have the answer. This is mostly due to the fact that the foreclosure process is different in each state.
The basic concept of foreclosure is the same in all states. Essentially, foreclosure is the legal process by which a lender attempts to recover the balance of a loan (in this case, a mortgage) from a defaulting borrower by forcing the sale of the directly-related asset. How this process varies state-by-state is through specific rules and governances that specify exactly what procedures must be followed. For instance, in one state only a single foreclosure notice may need to be mailed, while in another state multiple notices may need to be given through multiple avenues.
Generally, the foreclosure process is begun by the lender around three to six months after your first missed payment. Technically, in most states, foreclosure proceedings can legally begin immediately after you miss the payment, but this doesn’t happen very often. Many lenders have a period, usually 30 days, in which the payment is considered late rather than in default. To bring the loan current during this time, the borrower must pay late fees on top of the monthly payment. After two months, both payments and their respective late fees are usually required. Generally, 90 days is when lenders take serious action and begin the foreclosure process, either through judicial sale or power of sale.
A power of sale foreclosure is only permitted in 29 states and can be carried out by the mortgage lender without the involvement of the courts. This process is usually faster and involves transferring ownership of the property to a trustee after a set waiting period, who may then sell the house at public auction. The most common type of foreclosure is the judicial sale, which involves the court system and is legal in every state. A judicial sale typically involves the following:
• Foreclosure suit filed with the court by the lender
• Court sending the borrower a letter demanding immediate payment (usually within 30 days)
• If no payment is made, a judgment is entered and the lender is free to request an auction sale of the property
• Sheriff’s office commences auction
•Once property is sold, ownership is transferred
All foreclosures require that any involved parties be notified of the proceedings. In some instances, you, the landlord/borrower, may have a deficiency judgment made against you if the auction doesn’t produce a sale that satisfies the full borrowed amount. Once ownership is transferred, you are no longer the landlord. Though your rights to the property have been terminated, if you have a tenant at the time of foreclosure, they usually have certain rights which protect them from immediate eviction. Because of this, it is best to keep communications with them open throughout the foreclosure process.
Landlords also have a certain duty to their tenants to avoid foreclosure whenever possible. The best foreclosure defense, of course, is making timely payments. If you are concerned about how to stop foreclosure when you know you are going to be behind on payments, the best thing to do is to be proactive. Contact your lender and let them know you are struggling, or look for state programs designed to help landlords stay out of foreclosure. The federal government has also implemented several owner assistance programs, such as the Making Home Affordable Act. These programs offer help with foreclosure by working to modify or lower monthly payments, reduce principals, and provide temporary mortgage payment suspension for landlords who are otherwise unemployed.
You may also be able to build a defense strategy to take directly to the court proceedings. Foreclosure defense options vary by state, and may include unconscionability and failure of the lender to follow legal protocol. If you choose foreclosure defense in the courtroom, we strongly suggest working with a qualified attorney. In fact, in any situation in which you, as landlord, may need legal advice regarding foreclosure, you should consult with an experienced attorney in your state. Remember, none of the information provided by LandlordStation.com is legal advice. We have simply provided it for informational purposes.
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