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Mortgage Buzz

Foreclosure Process
by Ludy P. Corrales
Sun March 8, 2009 

Many are asking about the foreclosure process and the foreclosure timeline.  In this column, we will tackle the different kinds of foreclosure, the process and the timeline. 

Foreclosure processes are different in every state.  In general, mortgage companies start the foreclosure procedure about 3-6 months after the first missed mortgage payment.  After 30 days that the borrower is in default, the foreclosure process begins to accelerate. 

Three  types of foreclosures may be initiated: Judicial, Power of Sale, and Strict Foreclosure.  All types of foreclosure require public notices to be issued and all parties to be notified regarding the proceedings. 

Judicial Foreclosure
All states allow this type of foreclosure, and some require it. This is what we have in New Jersey.  The lender files suit with the judicial system, and the borrower will receive a note in the mail demanding payment. The borrower then has only 30 days to respond with a payment in order to avoid foreclosure. If a payment is not made after a certain time period, the mortgaged property then is sold through an auction to the highest bidder, carried out by a local court or sheriff's office.

Power of Sale
This type of foreclosure, also known as statutory foreclosure, is allowed by many states if the mortgage includes a power of sale clause. After a homeowner has defaulted on mortgage payments, the lender sends out notices demanding payments. Once an established waiting period has passed, the mortgage company, rather than local courts or sheriff's office, carries out a public auction. Non-judicial foreclosure auctions are often more expedient, though they may be subject to judicial review to ensure the legality of the proceedings.

Strict Foreclosure
A small number of states allow this type of foreclosure.  In strict foreclosure proceedings, the lender files a lawsuit on homeowner that has defaulted. If the borrower cannot pay the mortgage within a specific timeline ordered by the court, the property goes directly back to the mortgage holder.  Generally, strict foreclosures take place only when the debt amount is greater than the value of the property.

Once properties are sold through an auction, families have a small amount of time to find a new place to live and move out before the sheriff issues an eviction notice. 

The foreclosure timeline starts on the first month that a homeowner misses the mortgage payment.  On the fourth month, if you have not paid the full amount or worked out arrangements with your lender, you will be referred to your lender's attorney.  You will incur all attorney fees as part of your delinquency.  If you still have not paid the arrears, your house will be put in a Sheriff’s or Public Trustee’s Sale. 

In New Jersey, once the process begins, a foreclosure notice will be:

1)  posted in the county office of the county where the property is located;
2)  posted on the property in foreclosure; and
3)  published in two (2) newspapers in the county.  The lender must also notify the borrower       at least ten (10) days prior to the foreclosure sale.

The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by state. In some states it can be as quick as 2-3 months.  This is not the move-out date, but the end is near.  You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.

After the sale date, you may enter a redemption period.  Redemption is a period after your home has already been sold at a foreclosure sale when you can still reclaim your home.  In New Jersey, borrowers have a right to redemption and/or objection within ten (10) days after the sale.  You will need to pay the outstanding mortgage balance and all costs incurred during the foreclosure process. 

It is very important that you stay in contact with your lender and get assistance as early as possible. All dates are estimated, and vary according to your state and your mortgage company.

For more information, please call:
Ludy P. Corrales @ (908)693-4277 or email her at ccorra4828@aol.com. 
Ludy is the President and CEO of CLO Funding Corporation, a licensed mortgage lender in New Jersey, Maryland and California, and a registered mortgage broker in the states of New York and Virginia.