A foreclosure action is a legal process in which a lender, whether a bank, credit union, commercial lender or private financier repossesses a property after the buyer/borrower has defaulted on the terms of the mortgage loan. In general, a foreclosure action can be initiated after the buyer/borrower has missed two to four consecutive monthly payments.
Depending upon which state property is located, there may be one or two options to begin a foreclosure action: judicial foreclosure or non-judicial foreclosure (also known as a Power of Sale foreclosure).
To begin a foreclosure, you'll need to know which options are available to you, give the borrower an option to redeem, file notice with the court and then repossess the property.
Determine which foreclosure option is available to you. As a private lender, you may have the option to pursue a non-judicial foreclosure if the foreclosure laws in your state allow non-judicial foreclosures. It is a less expensive foreclosure process for the lender and is also faster in being able to repossess a property (because the private lender does not have to file a lawsuit and be placed on the court's docket calendar).
Look in your state's statutes to see if it allows non-judicial foreclosure actions against a delinquent borrower and the requirements of the delinquency. If your state only provides for judicial foreclosure, you will have to file a lawsuit.
Give the borrower a chance to pay the arrears. Regardless of which types of foreclosure actions your state allows for, you must give the borrower a right of redemption period in which to pay the monies owed, plus any interest and penalties. The period of redemption will be set forth in the mortgage agreement and in your state's statutory law. You will have to review both to make sure they are agreeable as the state's statutes govern the right of redemption and not the mortgage agreement. In other words, if state statutes give a borrower the right to pay the arrears within 30 days and the mortgage agreement states the redemption period is 20 days, you might not have a legally enforceable mortgage contract and should consult and attorney to determine its validity.
File a notice of foreclosure with the court. In both judicial and non-judicial foreclosure actions, a lender must file a notice with the court. In judicial foreclosures this is done by filing a complaint with the county court and a Lis Pendens (meaning a public notice that a lawsuit has been filed). In a non-judicial foreclosure, the lender simply files a notice with the court that they are initiating a foreclosure action (in some jurisdictions this may include having to publicly post the notice at the courthouse).
Repossess the property. For a non-judicial foreclosure, after a lender files notice with the court of the action, she simply waits until the right of redemption period expires and then evict the borrower (if necessary). A judicial foreclosure action requires the court to issue a judgment in favor of the lender and then wait for the borrower to respond. If the borrower responds to the complaint with an answer containing a justifiable defense, either a mediation or court date is set. If the borrower answers the complaint with an unjustifiable or legally insufficient defense, the lender must reaffirm her complaint allegations and wait for a summary judgment. In the case the borrower does not answer the lawsuit, the lender simply waits for a summary judgment to be entered in her favor.
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