FORECLOSURE PROCESS. Foreclosure Timeline

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1 FORECLOSURE PROCESS Foreclosure is the legal process where the mortgage lien holder attempts to recoup their investment by revoking and nullifying a homeowner s interest in a property. At the time a mortgage note is executed, the homeowner agrees to put up the property as collateral in exchange for a loan. If the borrower violates the terms of the loan by failing to make the payments, the mortgage lien holder has the right to take back the property and sell it. Unfortunately for borrowers in danger of losing their homes, if their lender is not willing to renegotiate the loan or accept a short sale, other than filing for bankruptcy, foreclosure can be a homeowner s only option. In this case, it is important for homeowners to clearly understand the foreclosure process as well as their rights to prevent it from being any more difficult than necessary. Foreclosure Timeline Although a lender is technically allowed to file a notice of default (NOD) anytime a payment is past due (except in California), the current mortgage crisis is precluding most lenders from doing so until after three to five months of missed payments. Even after an NOD is filed with the county recorder s office for the property in question, the borrower still has ample time to resolve the situation by making the missed payments necessary to bring the loan up-to-date, selling the property (this could mean a short sale if the property is worth less than what is owed), negotiating a forbearance agreement or working out a loan modification. While it is true that many lenders are taking more time than usual to initiate foreclosure, many people still fail to consider the possibility of losing their home and as a result adopt a head in the sand approach rather than choosing to inform themselves on how the process works, which causes them even more problems. Thus, homeowners who are worried about the possibility of foreclosure need to learn about their state s laws and process before it is too late. It is also very important for borrowers in danger of foreclosure to contact their lender early and often to try to find another solution before it is too late. 1

2 A state-by-state listing of the approximate time it takes after the NOD is filed for the home to be foreclosed upon can be found in Appendix E. Again, though foreclosure processes vary by state, below is an estimated timeline. First Month Missed Payment 30 days late: The lender will make initial contact by letter or phone. It is important for borrowers to respond quickly at this point, as failure to do so will result in the foreclosure process beginning much sooner. This is the time to talk with the lender about possible alternatives to foreclosure. Second month missed payment 60 days late: After 30 days, the borrower is in default, and the foreclosure process begins to accelerate; more calls from the lender are likely. It is important for borrowers to answer those calls in order to provide an explanation of why they are not making their payments, as well as what steps they are taking to try to resolve the problem. Third month missed payment 90 days late: After the third missed payment, borrowers will receive a letter from their lender stating the amount they are delinquent and giving them 30 days to bring their mortgage current. This is referred to as a "Demand Letter" or "Notice to Accelerate." Borrowers who do not pay the specified amount (which, at this point, will most likely be the total past-due balance unless arrangements are made) by the given date may face imminent foreclosure proceedings. At this point, however, borrowers still have time to make those alternate arrangements with their lender that will keep them out of foreclosure. Fourth month missed payment 120 days late: At this point, borrowers are closing in on the deadline given in the Demand or Notice to Accelerate letter. Unless they have either paid the past due amount in full or worked out other arrangements, they will be referred to the lender's attorney and incur all attorney fees as part of their delinquency. Sheriff's or Public Trustee's Sale: At this point, the attorney will schedule the property for sale, which is the actual day of foreclosure. The borrower may be notified of the date in a few different ways, including by mail, a notice taped to the door of the residence and/or an advertisement in a local paper. The period between the Demand or Notice to Accelerate letter and the actual sale varies by state (in some states it can be as brief as two to three months.) Borrowers have until the date of sale to either make arrangements with their lender or pay the total amount owed, including attorney fees. Unfortunately, once an auction date is set 2

3 the chance of the lender agreeing to a loan modification or short sale are slim, as most feel the borrower has had plenty of time to find an alternative to foreclosure and have chosen not to do so. Redemption Period: After the sale date has been set, borrowers may enter a redemption period. Redemption periods allow homeowners additional time to live in the property without being evicted. During this time, a bank cannot move forward with the foreclosure process. Some foreclosure laws place the redemption period before the sheriff s sale, while others place it afterward. Although redemption periods differ by state (and some states fail to offer them at all), this timeframe will be indicated on the same notice that is used to specify the date of the Sheriff's or Public Trustee's Sale. Types of Foreclosure Foreclosures fall into one of three categories: Judicial, Power of Sale and Strict Foreclosure. Each type requires the issuance of a public notice and the notification of all parties regarding the proceedings. Once a home has been sold at auction, the borrower has a brief period of time to find a new residence and move out before the sheriff issues an eviction notice. Judicial Foreclosure: With this type of foreclosure which all states allow and some require the lender files a lawsuit that results in the borrower receiving a registered letter demanding payment. At this point, the borrower has 30 days to respond with a payment or else face foreclosure. If a payment is not made by a specified deadline, the property is auctioned to the highest bidder by a local court or sheriff's office. Power of Sale: Also referred to as a Statutory Foreclosure, this type is allowed by several states, provided the mortgage includes a Power of Sale clause. Once a borrower s loan has become delinquent, the lender issues notices demanding payment. At the end of a specified waiting period, the mortgage company rather than the local court or sheriff's office holds a public auction. These auctions often proceed more quickly, though the local court may review them to make sure they are held according to the strict letter of the law. 3

4 Strict Foreclosure: These foreclosures which are only allowed by a few states are allowed when the borrower owes more than the property is worth. In Strict Foreclosure proceedings, the lender files a lawsuit against a homeowner who has defaulted. The court then specifies a payment schedule for the borrower that, if not strictly adhered to, results in the return of the property to the lender. Deficiency Judgment A deficiency judgment is a judgment lien awarded to a lender through the court system against debtors, defendants or borrowers when the sale of their property did not produce sufficient funds to pay their mortgage in full. This definition would apply to any type of sale, whether forced, foreclosed, bank owned or voluntary. The lender will then attempt to collect the debt by taking legal action against the borrower. This option to recover funds may or may not be available to the lender depending on the following factors: 1. Whether or not the lender made a recourse or non-recourse loan 2. The agreement was made to transfer the secured debt to an unsecured promissory note covering the remaining balance due 3. The lender issued a 1099-C form claiming a cancellation of debt The deficiency judgment can be of great concern to the homeowner. If the deficiency judgment is granted, it will appear on the homeowner s credit report. This judgment could have a negative effect until it is either settled or paid in full. A deficiency judgment is awarded to a lender if a motion is filed within 90 days of a Judicial Foreclosure or the cancellation of debt. However, there are a few ways homeowners could remedy the situation: 1. They could file bankruptcy to address the judgment 2. They could file for an exemption from creditors 3. They could file an appeal or motion 4

5 4. They could short sale the deficiency judgment with the lender (negotiate to pay a lesser amount) If the lender issues a 1099-C, then they cannot sue for a deficiency judgment; they can only pursue one or the other. Lenders prefer to handle foreclosure sales out of court and therefore typically do not move forward with a deficiency judgment due to the high costs associated with a Judicial Foreclosure. With an agreement to short sale, or the acknowledgement of hardship, some lenders will not seek a judgment against the homeowner as a matter of policy. If a lender files a motion for a deficiency judgment, it is recommended that the borrower consult an attorney to discuss possible solutions. Non-recourse Loan / Anti-deficiency States A non-recourse debt is a secured loan by a pledge of collateral (typically real property), but one for which the borrower is not personally liable. If the borrower defaults, the lender s recovery is limited solely to the collateral. There are non-recourse loans and also non-recourse states that have their own anti-deficiency statutes. In a non-recourse state, the borrower is not held personally liable for more than the property s value at the time that the loan is repaid. The lender is required to accept the loss generated by the sale and cannot sue the borrower for any deficiencies incurred. In a few cases, anti-deficiency statues do allow lenders to collect a limited amount of money from the borrower. In some states (such as California), non-recourse laws apply only to purchase money loans. The purpose of non-recourse debt is to require lenders to underwrite their loans on a sustainable and prudent basis, since the lender not the borrower is in the first loss position. A licensed tax accountant or attorney should review the tax consequences of disposition of property encumbered by non-recourse debt. The federal income tax effect and collection of loss would be opposite for a recourse loan. Most loans secured by collateral, especially HELOC and high LTV transactions, are full-recourse loans. The anti-deficiency / non-recourse states (either full or partial) are as follows: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah and Washington In one action states, lenders are only permitted to file a single lawsuit to collect mortgage debt. This plays out differently depending if the state is a judicial or non-judicial 5

6 foreclosure state. For example, in the state of New York, a lender must choose between foreclosing on the property and suing to collect the debt. The following states have some type of one action statute: California, Idaho, Montana, Nevada, New York and Utah. Anti-deficiency laws typically provide protection only when the property is used as the primary residence. A full list of each state s judicial foreclosure stance can be located in Appendix E. Homeowners in need of additional information pertaining to their state laws should seek help from a qualified professional. Foreclosure of a Non-recourse Loan A non-recourse loan does not allow the lender to pursue anything other than collateral. The lender s foreclosure of the property does not result in standard income for the owner of a property that was subject to a non-recourse debt, regardless of whether or not the debt was in excess of the fair market value of the property. For federal income tax purposes, the interaction of the amount realized upon disposition, the amount of nonrecourse debt and the amount of adjusted basis in the property is fairly complex. Therefore, a professional tax accountant should review the tax consequences of the property s disposition. 6

7 STATE FORECLOSURE TIMETABLES Alabama Primary Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 30 to 60 days Right of Redemption Period: Yes - 12 Months Deficiency Judgments Allowed: Yes Alabama's Attorney General's Office State House Montgomery, AL Ph: (205) Fax: (205) Alaska Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 90 days Right of Redemption Period: Yes, Non-Judicial Foreclosure Only Deficiency Judgments Allowed: Yes, Judicial Foreclosure Only Alaska's Attorney General's Office 450 Diamond Courthouse P.O. Box Juneau, AK Ph: (907) Fax: (907)

8 Arizona Judicial Foreclosure Available: Varies Non- Initial Public Notice: Notice of Sale Timeframe from NOD Filing: Approximately 90 days Deficiency Judgments Allowed: Dependant on individual situation Arizona's Attorney General's Office 1275 W. Washington Phoenix, AZ Ph: (602) Fax: (602) Arkansas Non- Timeframe from NOD Filing: Approximately 120 days Right of Redemption Period: Yes, Judicial Foreclosure Only Deficiency Judgments Allowed: Yes, Non-Judicial Foreclosure Only Arkansas's Attorney General's Office 200 Tower Building 323 Center St. Little Rock, AR Ph: (501) Fax:(501)

9 California Security Instrument: Trust Deed Judicial Foreclosure Available: Varies Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Typically 111 days Deficiency Judgments Allowed: Yes California's Attorney General's Office 1515 K Street, Suite 511 P.O. Box Sacramento, CA Ph: (916) Fax:(916) Civil Law Division: (916) Colorado Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 60 days, due to changes in law effective July 1, Deficiency Judgments Allowed: Yes Colorado's Attorney General's Office 1525 Sherman Street, 5th floor Denver, CO Ph: (303) Fax: (303)

10 Connecticut Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Between 30 and 150 days Right of Redemption Period: Dependant on individual situation Deficiency Judgments Allowed: Yes Delaware Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 90 days Deficiency Judgments Allowed: No Delaware Attorney General's Office Carvel State office building 820 N. French Street Wilmington, DE Ph: (302) Fax: (302)

11 Florida Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 180 days Deficiency Judgments Allowed: Yes Florida's Attorney General's Office The Capitol Tallahassee, FL Ph: (904) Fax: (904) Georgia Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 90 days Deficiency Judgments Allowed: Yes Georgia's Attorney General's Office 40 Capitol Square. SW Atlanta, GA Ph: (404) Fax: (404)

12 Hawaii Non- Initial Public Notice: Publication Timeframe from NOD Filing: Between 160 and 195 days Deficiency Judgments Allowed: Yes Hawaii's Attorney General's Office 425 Queen St. Honolulu, HI Ph: (808) Fax:(808) Idaho Security Instrument: Trust Deed Judicial Foreclosure Available: No Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 150 days Deficiency Judgments Allowed: Yes Idaho's Attorney General's Office 210 Statehouse Boise, ID

13 Illinois Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 210 days Deficiency Judgments Allowed: Dependant on individual situation Illinois's Attorney General's Office 500 S. Second Street Springfield, IL Ph: (217) Fax: (217) Indiana Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 150 days Indiana's Attorney General's Office 219 State House Indianapolis, IN Ph: (317) Fax: (317)

14 Iowa Non-Judicial Foreclosure Available: No Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 160 days Deficiency Judgment Allowed: No Iowa's Attorney General's Office Hoover Building, 2nd floor Des Moines, IA Ph: (515) Fax: (515) Kansas Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 120 days Kansa's Attorney General's Office Kansas Judicial Center 2nd Floor Topeka, KS Ph: (913) Fax: (913)

15 Kentucky Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 147 days Kentucky's Attorney General's Office P.O. Box 2000 Frankfort, KY Ph: (502) Fax: (502) Louisiana Non-Judicial Foreclosure Available: No Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 60 days Louisiana's Attorney General's Office P.O. Box Baton Rouge, LA Ph: (504) Fax: (504)

16 Maine Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Between 90 and 365 days Maine's Attorney General's Office State House Station 6 Augusta, ME Ph: (207) Fax: (207) Maryland Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 90 days Maryland's Attorney General's Office 200 St. Paul Place Baltimore, MD Ph: (410) Fax: (410)

17 Massachusetts Non- Timeframe from NOD Filing: Approximately 90 days Deficiency Judgment Allowed: No Massachusetts' Attorney General's Office One Ashburton Place, Room 2010 Boston, MA Ph: (617) Fax: (617) Michigan Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Deficiency Judgment Allowed: Dependant on individual situation Michigan's Attorney General's Office Law Building P.O. Box Lansing, MI Ph: (517) Fax: (517)

18 Minnesota Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Minnesota's Attorney General's Office 102 State Capitol St. Paul, MN Ph: (612) Fax: (612) Mississippi Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Deficiency Judgment Allowed: No Mississippi's Attorney General's Office P.O. Box 220 Jackson, MS Ph: (601) Fax: (601)

19 Missouri Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Deficiency Judgment Allowed: No Missouri's Attorney General's Office Supreme Court Building P.O. Box 899 Jefferson City, MO Ph: (314) Fax: (314) Montana Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 150 days Deficiency Judgment Allowed: Dependant on individual situation Montana's Attorney General's Office Justice Building 215 N. Sanders P.O. Box Helena, MT

20 Nebraska Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 180 days Deficiency Judgment Allowed: No Nebraska's Attorney General's Office 2115 State Capitol P.O. Box Lincoln, NE Ph: (402) Fax: (402) Nevada Judicial Foreclosure Available: Varies Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Between 60 and 120 days Right of Redemption Period: Dependant on individual situation Nevada's Attorney General's Office Capitol Complex Carson City, NV Ph: (702) Fax: (702)

21 New Hampshire Non- Initial Public Notice: Notice of Sale Timeframe from NOD Filing: Approximately 60 days New Hampshire's Attorney General's Office 33 Capitol Street Concord, NH Ph: (603) Fax: (603) New Jersey Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Between 90 and 120 days New Jersey's Attorney General's Office Justice Complex CN 080 Trenton, NJ Ph: (609) Fax: (609)

22 New Mexico Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 120 days New Mexico's Attorney General's Office P.O. Drawer 1508 Santa Fe, NM Ph: (505) Fax: (505) New York Non- Timeframe from NOD Filing: Between 365 and 570 days New York's Attorney General's Office State Capitol Albany, NY Ph: (518) Fax: (518)

23 North Carolina Non- Initial Public Notice: Notice of Hearing Timeframe from NOD Filing: Approximately 60 days Deficiency Judgment Allowed: Dependant on individual situation North Carolina's Attorney General's Office P.O. Box 629 Raleigh, NC Ph: (919) North Dakota Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 90 days North Dakota's Attorney General's Office State Capitol, 1st floor 600 E. Boulevard Ave. Bismark, ND Ph: (701) Fax: (701)

24 Ohio Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 150 days Deficiency Judgment Allowed: 1 to 3 Months Ohio's Attorney General's Office 30 E. Broad St., 17th floor Columbus, OH Ph: (614) Fax: (614) Oklahoma Non- Timeframe from NOD Filing: Approximately 90 days Oklahoma's Attorney General's Office 112 State Capitol Oklahoma City, OK Ph: (405) Fax: (405)

25 Oregon Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Between 120 and 180 days Oregon's Attorney General's Office 100 Justice Building Salem, OR Ph: (503) Fax: (503) Pennsylvania Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: Approximately 90 days Pennsylvania's Attorney General's Office Strawberry Square, 16th floor Harrisburg, PA Ph: (717) Fax: (717)

26 Rhode Island Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Rhode Island's Attorney General's Office 72 Pine St. Providence, RI Ph: (401) Fax: (401) South Carolina Non-Judicial Foreclosure Available: No Timeframe from NOD Filing: TBD based on individual situations South Carolina's Attorney General's Office P.O. Box Columbia, SC Ph: (803) Fax: (803)

27 South Dakota Non- Timeframe from NOD Filing: Approximately 90 days Deficiency Judgment Allowed: Dependant on individual situation Tennessee Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Tennessee's Attorney General's Office 500 Charlotte Ave. Nashville, TN Ph: (615) Fax: (615)

28 Texas Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Texas's Attorney General's Office Price Daniel, Sr. Building P.O. Box Austin, TX Ph: (512) Fax: (512) Utah Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: TBD based on individual situations Utah's Attorney General's Office 236 State Capitol Salt Lake City, UT Ph: (801) Fax: (801)

29 Vermont Non- Timeframe from NOD Filing: Approximately 210 days Vermont's Attorney General's Office 109 State Street Montpelier, VT Ph: (802) Fax: (802) Virginia Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days Right of Redemption Period: Dependant on individual situation Virginia's Attorney General's Office 101 N. Eighth St. Richmond, VA Ph: (804) Fax: (804)

30 Washington Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: TBD based on individual situations Right of Redemption Period: Dependant on individual situation Washington's Attorney General's Office 905 Plum St., Building #3 P.O. Box Olympia, WA Washington D.C. Security Instrument: Trust Deed Judicial Foreclosure Available: No Non- Initial Public Notice: Notice of Default Timeframe from NOD Filing: Approximately 60 days ne Washington, DC's Attorney General's Office Carvel State office building 820 N. French St. Wilmington, DE Ph: (302) Fax:(302)

31 West Virginia Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 60 days ne Deficiency Judgment Allowed: No West Virginia's Attorney General's Office State Capitol Room 26, East wing Charleston, WV Ph: (304) Fax: (304) Wisconsin Non- Timeframe from NOD Filing: TBD based on individual situations 31

32 Wyoming Non- Initial Public Notice: Publication Timeframe from NOD Filing: Approximately 90 days Right of Redemption Period: 3 Months Wyoming's Attorney General's Office 123 State Capitol Cheyenne, WY Ph: (307) Fax: (307) For more information on state foreclosure laws and regulations visit and click on your state. 32