Property Foreclosure: Everything You Need to Know!
We’re all familiar with property foreclosure. The thought of losing a home is terrifying, and rightly so. But you probably know less about what happens when your home is foreclosed on—or how to foreclose on a property—than you think.
If you’re lucky, you haven’t experienced property foreclosure, which means you may not actually be that familiar with the process. Property foreclosure doesn’t just involve getting a letter in the mail, and property foreclosure doesn’t mean an eviction process. Property foreclosure is a complex, multi-step process that can take a few months from beginning to end.
As you continue your journey into real estate investing, you need a working knowledge of real estate, and how to foreclose on a property is included here. As a private lender, there’s always a risk that your borrower won’t be able to keep up with payments. While this isn’t the ideal and we hope it never happens, a borrower defaulting on their mortgage loan can happen. Personal events, the loss of a job, or the addition of another bill can lead a borrower to default on their loan.
With that in mind, let’s break down property foreclosure in full. Stay tuned if you’d like to learn all the nitty gritty details:
- Foreclosure by Power of Sale
- How to Foreclose on a Property
- Dealing with Foreclosure Stress
What is Property Foreclosure?
Simply put, property foreclosure is the legal process of repossessing a property after a borrower defaults on a loan.
When you take out a mortgage loan, you sign a mortgage agreement. One part of that mortgage agreement places a lien on the property itself. A lien is a right to keep possession of something owned by someone else until that person pays their debt. Liens are common with large loans, such as home loans and car loans. Under the mortgage agreement, the home serves as collateral to protect the lender and ensure the borrower makes payments.
Mortgage agreements can vary. For example, the mortgage repayment may take place over 15 years or 30 years. Similarly, the details of property foreclosure and dealing with foreclosure from a legal standpoint may vary. Broadly speaking, if the borrower misses enough payments, the lender is legally allowed to begin the property foreclosure process.
If you do need to begin the property foreclosure process, here’s how to foreclose on a property in two different ways. Judicial foreclosure is the most common type of property foreclosure. The other form of property foreclosure is—you guessed it—non-judicial foreclosure. Non-judicial foreclosure is also known as foreclosure by power of sale. Let’s dive into the details of both judicial foreclosure and foreclosure by power of sale!
What Is Judicial Foreclosure?
While both types of property foreclosure require notifying the courts, judicial foreclosure stays in the courts throughout the process, unlike foreclosure by power of sale. Here’s how to foreclose on a property via judicial foreclosure.
After notifying the borrower of property foreclosure, your first step is to give them a chance to pay the money they owe. Of course, depending on your mortgage agreement, the total may also include penalties or interest. Since you’re learning how to foreclose on a property, you should know you can’t come in and foreclose right away. Your mortgage agreement and state’s law will dictate how long the borrower has to pay.
If they haven’t paid the total, then your next step is to file a notice of foreclosure with the court. The court must issue a judgment in your favor, and the whole process can take at least a few months. Once the court has given you the final ruling to proceed, you can complete the property foreclosure and eviction processes.
It’s best to work closely with an attorney throughout your property foreclosure process, regardless whether it is a judicial foreclosure or a foreclosure by power of sale. Before you provide a loan to anyone, you need to ensure the details of your mortgage agreement match the specifics of your local and state laws. The steps you need to take are inflexible, and if you don’t take the proper measures from the beginning, you could be legally liable. Your mortgage agreement may not even be enforceable! The last thing you want is to realize this too late—and end up being prosecuted.
What is Foreclosure by Power of Sale?
A foreclosure by power of sale—the non-judicial foreclosure—is a more streamlined process. Typically, foreclosure by power of sale isn’t on the table for traditional lenders, like banks, who must stick to the courts throughout the process. Foreclosure by power of sale, on the other hand, is a fairly common option for private lenders and provides some level of flexibility. Given that fact, here’s how to foreclose on a property via foreclosure by power of sale!
If the property foreclosure laws in your state allow for foreclosure by power of sale, you must file notice of the action with the court. Because you are not utilizing the judicial foreclosure process, that is just about the only step you need to take with the court. Then, you must simply wait until the right of redemption period expires, which is another similar feature between the two types of property foreclosure. Once you have given the borrower the stipulated time to catch up on any payments, interest, or fees—and assuming they have not—you can repossess the property.
Foreclosure by power of sale can make for a much faster property foreclosure process, and one with far fewer trips to the courthouse. However, it doesn’t matter what type of property foreclosure you engage in, you could be legally liable if you haven’t shored up your mortgage agreement with state law.
In some ways, foreclosure by power of sale is an easier route to take. But property foreclosure, and dealing with foreclosure, can be difficult for everyone involved—even foreclosure by power of sale.
Dealing with Foreclosure Stress and Still Conquering It
When it comes to dealing with foreclosure stress, first thing’s first. Even though you know how to foreclose on a property, property foreclosure (and eviction) should be your last resort. It’s an arduous, costly legal process for everyone involved. Dealing with foreclosure can be incredibly difficult for both the borrower and lender.
Chances are, your borrower didn’t take out the loan under the assumption they wouldn’t be able to pay it back. Chances are that personal finance just got in the way. This doesn’t make the property foreclosure process any easier, but hopefully it provides some perspective on your responsibility as a private lender as you’re dealing with foreclosure stress.
Dealing with foreclosure stress as a lender starts with ensuring you have the right professional team. First off, you absolutely need a lawyer familiar with the applicable laws in your area. They can help guide you through both judicial foreclosure and and foreclosure by power of sale. Even a broker who specializes in property foreclosure may be able to shed some light on your situation. Surrounding yourself with the right professionals can help you navigate the process. That is the first step in dealing with foreclosure and the anxiety that comes with a property foreclosure.
Property Foreclosure Confidence
Dealing with foreclosure is hard on everyone, but sometimes it’s a necessary break. Rather than struggling with payments, it can be healthier at times for a borrower to cut their losses and downsize. For you, it can mean the burden of late and missed payments is gone. From there, you can start figuring out what to do with your property.
Now you know the basics:
- What is Foreclosure?
- How to Foreclose on a Property
- Power of Sale foreclosure
- Dealing with Foreclosure Stress
If you ever take on the path of a private lender, you can be confident in how to foreclose on a property, so you and your borrower can pick up the pieces and start your next chapter. Real estate is a life-long game- so bounce back and never give up!