article is a highly
explanation of foreclosure law in
What is foreclosure?
Foreclosure is a legal process by which an owner's right to a property is terminated.
Foreclosure is usually the result of a borrower’s default of a payment obligation. Typically, foreclosure involves a forced sale of the property at public auction. The money received from the sale is applied to the debt owed.
1. Judicial Foreclosure;
2. Non-Judicial Foreclosure.
In judicial foreclosure, the lender sues the property owner in state court. A trial occurs. Appraisals and other items are required. An auction occurs. The owner can still redeem (buy back) the property from the successful bidder within one year after the auction sale.
Non-Judicial Foreclosure almost always occurs in
In non-judicial foreclosure, the lender may foreclose on a property without filing a lawsuit and without court approval.
Does the lender have to foreclose, or can the lender just sue the borrower for money owed?
Can the lender sue me for money if the foreclosure sale does not pay off the entire loan?
If a loan was used to pay for the purchase of “home” (or the associated closing costs during the home’s purchase), then that lender cannot sue you for the deficiency.
By “home”, I mean a owner occupied, residential dwelling of one to four units (not vacation homes, not investment properties, or not apartments with more than four units)
If a loan was NOT used to pay for the purchase of home (or the associated closing costs during the home’s purchase), then that lender can sue you for the deficiency if judicial foreclosure is used.
Examples of when a loan was NOT used to pay for the home (or the associated closing costs during the home’s purchase) are loans obtained after the home is purchased (typically refinancing loans, home equity loans, HELOCs, hard money second trust deed, hard money second mortgage, etc.).
If a lender uses non-judicial foreclosure, such lender may not sue for a deficiency.
Exception: However, if there are two or more secured loans against the property, and Lender “A” uses non-judicial foreclosure, and Lender “B” who does not foreclose, is left with no security (i.e., "worthless security") and, thus, receives no payment from the foreclosure sale, then Lender “B” can sue you for the deficiency (as long as Lender B’s loan was not used to purchase the home.
Note: While deficiency judgments not available to a lender who utilizes non-judicial foreclosure, a separate judicial tort lawsuit for fraud, waste, or malicious destruction of property may still be possible.
If the lender does not or cannot sue me for the balance owed, is the forgiveness of such debt taxable as income?
to the IRS,
Mortgage Forgiveness Debt Relief Act benefits can be used for debts
tax years 2007 through 2012.
Other laws may prevent such forgiveness of debt income tax liability. To learn about other tax exceptions, see the article: Tax Consequences of Short Sale, Foreclosure, and Debt Settlement.
Depending on the timing of the various required notices, uncontested non-judicial foreclosure normally takes a minimum of 111 days. However, non-judicial foreclosure will be delayed if the borrower files for bankruptcy, contests the action in court, or seeks delays and adjournments. Sometimes, some lenders delay the foreclosure process themselves due to backlog or other reasons.
Day 1-Day 90
Lasts 90 days from the recordation of the “Notice of Default.”
Day 91-Day 110
Publication Period whereby notice of sale and sale date is published, posted and mailed.
Lasts 20 days from the end of Redemption
Day 111 or more
Held 21 or more day days after first publication
The property is sold to the highest bidder or reverts back to the lender.
Note: This article intentionally avoided certain technical words such as "power of sale", "trustee sale", "recourse loan", "non-recourse loan", "purchase money loan", "nonpurchase money loan", "antideficiency statute", "junior lien", "one action rule", "one form of action rule", and other more legally precise language as well as, for the most part, did not cite cases or specific statutes.
Foreclosure law is a complex area of law that is riddled with exceptions and variables that may apply depending on the facts of each situation. Laws are frequently changing. This article is not foreclosure or legal advice. Therefore, before taking or not taking any actions related to your property, you are urged to seek legal counsel from an attorney who is knowledgeable and experienced in foreclosure law.
Tax laws are complicated and changing. This article is not tax or legal advice. To determine whether or not and how the above tax laws apply to your particular situation, you are urged to seek counsel from an experienced and knowledgeable tax professional. Moreover, be proactive. Before going forward with a foreclosure, short sale, bankruptcy, or debt settlement, seek advice from your tax adviser to determine what, if any, tax consequences there may be.
The author of this article is a Christian bankruptcy lawyer.
See article: Bankruptcy and Foreclosure
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