FORECLOSURE PROCESS. Foreclosure Timeline

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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.

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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

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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.

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 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

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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

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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 non-recourse 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.

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STATE FORECLOSURE TIMETABLES

Alabama

Primary Security Instrument: Mortgage / Trust Deed Judicial Foreclosure Available: Yes

Non-Judicial Foreclosure Available: Yes Initial Public Notice: Publication

Timeframe from NOD Filing: Approximately 30 to 60 days Right of Redemption Period: Yes - 12 Months

Deficiency Judgments Allowed: Yes Contact:

Alabama's Attorney General's Office State House

Montgomery, AL 36103 Ph: (205) 242-7300 Fax: (205)242-2885

Alaska

Security Instrument: Mortgage / Trust Deed Judicial Foreclosure Available: Yes

Non-Judicial Foreclosure Available: Yes 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 Contact:

Alaska's Attorney General's Office 450 Diamond Courthouse

P.O. Box 110300 Juneau, AK 99811-0300 Ph: (907) 465-3600 Fax: (907) 465-2075

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Arizona

Security Instrument: Mortgage / Trust Deed Judicial Foreclosure Available: Varies Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Sale

Timeframe from NOD Filing: Approximately 90 days Right of Redemption Period: No

Deficiency Judgments Allowed: Dependant on individual situation Contact:

Arizona's Attorney General's Office 1275 W. Washington Phoenix, AZ 85007 Ph: (602) 542-5025 Fax: (602) 542-1275

Arkansas

Non-Judicial Foreclosure Available: Yes Initial Public Notice: Complaint

Timeframe from NOD Filing: Approximately 120 days Right of Redemption Period: Yes, Judicial Foreclosure Only

Deficiency Judgments Allowed: Yes, Non-Judicial Foreclosure Only Contact:

Arkansas's Attorney General's Office 200 Tower Building

323 Center St.

Little Rock, AR 72201-2610 Ph: (501) 682-2007

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California

Security Instrument: Trust Deed Judicial Foreclosure Available: Varies Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Default

Timeframe from NOD Filing: Typically 111 days Right of Redemption Period: 1 to 3 Months Deficiency Judgments Allowed: Yes

Contact:

California's Attorney General's Office 1515 K Street, Suite 511

P.O. Box 944255

Sacramento, CA 94244-2550 Ph: (916) 445-9555

Fax:(916) 324-5205

Civil Law Division: (916) 324-5431

Colorado

Right of Redemption Period: No, due to changes in law effective July 1, 2007. Deficiency Judgments Allowed: Yes

Contact:

Colorado's Attorney General's Office 1525 Sherman Street, 5th floor Denver, CO 80203

Ph: (303) 866-3052 Fax: (303) 866-5691

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Connecticut

Security Instrument: Mortgage Judicial Foreclosure Available: Yes Non-Judicial Foreclosure Available: No Initial Public Notice: Complaint

Timeframe from NOD Filing: Between 30 and 150 days Right of Redemption Period: Dependant on individual situation Deficiency Judgments Allowed: Yes

Delaware

Deficiency Judgments Allowed: No Contact:

Delaware Attorney General's Office Carvel State office building

820 N. French Street Wilmington, DE 19801 Ph: (302) 577-3047 Fax: (302) 577-3090

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Florida

Florida's Attorney General's Office The Capitol

Tallahassee, FL 32399-1050 Ph: (904) 488-2526

Fax: (904) 488-5106

Georgia

Timeframe from NOD Filing: Approximately 90 days Right of Redemption Period: 1 to 3 Months

Georgia's Attorney General's Office 40 Capitol Square. SW

Atlanta, GA 30334-1300 Ph: (404) 656-3300 Fax: (404) 651-9148

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Hawaii

Timeframe from NOD Filing: Between 160 and 195 days Right of Redemption Period: No

Hawaii's Attorney General's Office 425 Queen St.

Honolulu, HI 96813 Ph: (808) 586-1500 Fax:(808) 586-1239

Idaho

Security Instrument: Trust Deed Judicial Foreclosure Available: No Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Default

Idaho's Attorney General's Office 210 Statehouse

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Illinois

Deficiency Judgments Allowed: Dependant on individual situation Contact:

Illinois's Attorney General's Office 500 S. Second Street

Springfield, IL 62706 Ph: (217) 782-1090 Fax: (217) 782-7046

Indiana

Deficiency Judgment Allowed: Yes Contact:

Indiana's Attorney General's Office 219 State House

Indianapolis, IN 46204 Ph: (317) 232-6201 Fax: (317) 232-7979

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Iowa

Security Instrument: Mortgage Judicial Foreclosure Available: Yes Non-Judicial Foreclosure Available: No Initial Public Notice: Notice of Default

Deficiency Judgment Allowed: No Contact:

Iowa's Attorney General's Office Hoover Building, 2nd floor Des Moines, IA 50319 Ph: (515) 281-5164 Fax: (515) 281-4209

Kansas

Kansa's Attorney General's Office Kansas Judicial Center

2nd Floor

Topeka, KS 66612-1597 Ph: (913) 296-2215 Fax: (913) 296-6296

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Kentucky

Kentucky's Attorney General's Office P.O. Box 2000

Frankfort, KY 40602-2000 Ph: (502) 573-7600 Fax: (502) 564-2894

Louisiana

Security Instrument: Mortgage Judicial Foreclosure Available: Yes Non-Judicial Foreclosure Available: No Initial Public Notice: Notice of Default

Louisiana's Attorney General's Office P.O. Box 94005

Baton Rouge, LA 70804-9005 Ph: (504) 342-7013

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Maine

Timeframe from NOD Filing: Between 90 and 365 days Right of Redemption Period: 1 to 3 Months

Maine's Attorney General's Office State House Station 6

Augusta, ME 04333 Ph: (207) 626-8800 Fax: (207) 287-3145

Maryland

Maryland's Attorney General's Office 200 St. Paul Place

Baltimore, MD 21202-2021 Ph: (410) 576-6300

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Massachusetts

Massachusetts' Attorney General's Office One Ashburton Place, Room 2010 Boston, MA 02108

Ph: (617) 727-2200 Fax: (617) 727-5768

Michigan

Deficiency Judgment Allowed: Dependant on individual situation Contact:

Michigan's Attorney General's Office Law Building

P.O. Box 30212 Lansing, MI 48909 Ph: (517) 373-1110 Fax: (517) 373-4916

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Minnesota

Minnesota's Attorney General's Office 102 State Capitol

St. Paul, MN 55155 Ph: (612) 296-6196 Fax: (612) 296-4193

Mississippi

Mississippi's Attorney General's Office P.O. Box 220

Jackson, MS 39205 Ph: (601) 359-3680 Fax: (601) 359-3796

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Missouri

Missouri's Attorney General's Office Supreme Court Building

P.O. Box 899

Jefferson City, MO 65102 Ph: (314) 751-3321 Fax: (314) 751-0774

Montana

Montana's Attorney General's Office Justice Building

215 N. Sanders P.O. Box 201401

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Nebraska

Security Instrument: Mortgage Judicial Foreclosure Available: Yes Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Default

Nebraska's Attorney General's Office 2115 State Capitol P.O. Box 98920 Lincoln, NE 68509-8920 Ph: (402) 471-2682 Fax: (402) 471-3297

Nevada

Security Instrument: Mortgage / Trust Deed Judicial Foreclosure Available: Varies Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Default

Timeframe from NOD Filing: Between 60 and 120 days Right of Redemption Period: Dependant on individual situation Deficiency Judgment Allowed: Yes

Contact:

Nevada's Attorney General's Office Capitol Complex

Carson City, NV 89710 Ph: (702) 687-5203 Fax: (702) 687-5798

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New Hampshire

Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Sale

New Hampshire's Attorney General's Office 33 Capitol Street

Concord, NH 03301-6397 Ph: (603) 271-3671

Fax: (603) 271-2110

New Jersey

New Jersey's Attorney General's Office Justice Complex

CN 080

Trenton, NJ 08625 Ph: (609) 984-9574 Fax: (609) 292-8268

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New Mexico

New Mexico's Attorney General's Office P.O. Drawer 1508

Santa Fe, NM 87504-1508 Ph: (505) 827-6000

Fax: (505) 827-5826

New York

Timeframe from NOD Filing: Between 365 and 570 days Right of Redemption Period: No

New York's Attorney General's Office State Capitol

Albany, NY 12224 Ph: (518) 474-1778 Fax: (518) 474-0714

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North Carolina

Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Hearing

North Carolina's Attorney General's Office P.O. Box 629

Raleigh, NC 27602 Ph: (919) 733-3377

North Dakota

North Dakota's Attorney General's Office State Capitol, 1st floor

600 E. Boulevard Ave. Bismark, ND 58505-0040 Ph: (701) 224-2210 Fax: (701) 224-2226

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Ohio

Deficiency Judgment Allowed: 1 to 3 Months Contact:

Ohio's Attorney General's Office 30 E. Broad St., 17th floor Columbus, OH 43266-0410 Ph: (614) 466-4320

Fax: (614) 466-5087

Oklahoma

Oklahoma's Attorney General's Office 112 State Capitol

Oklahoma City, OK 73105 Ph: (405) 521-3921

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Oregon

Oregon's Attorney General's Office 100 Justice Building

Salem, OR 97310 Ph: (503) 378-4400 Fax: (503) 378-3784

Pennsylvania

Pennsylvania's Attorney General's Office Strawberry Square, 16th floor

Harrisburg, PA 17120 Ph: (717) 787-3391 Fax: (717) 787-8242

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Rhode Island

Rhode Island's Attorney General's Office 72 Pine St.

Providence, RI 02903-2856 Ph: (401) 274-4400

Fax: (401) 274-1331

South Carolina

Timeframe from NOD Filing: TBD based on individual situations Right of Redemption Period: No

South Carolina's Attorney General's Office P.O. Box 11549

Columbia, SC 29211 Ph: (803) 734-3970 Fax: (803) 734-4323

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South Dakota

Deficiency Judgment Allowed: Dependant on individual situation

Tennessee

Tennessee's Attorney General's Office 500 Charlotte Ave.

Nashville, TN 37243-0497 Ph: (615) 741-3491

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Texas

Texas's Attorney General's Office Price Daniel, Sr. Building

P.O. Box 12548 Austin, TX 78711-2548 Ph: (512) 463-2100 Fax: (512) 463-2063

Utah

Timeframe from NOD Filing: TBD based on individual situations Right of Redemption Period: 1 to 3 Months

Utah's Attorney General's Office 236 State Capitol

Salt Lake City, UT 84114 Ph: (801) 538-1015 Fax: (801) 538-1121

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Vermont

Vermont's Attorney General's Office 109 State Street

Montpelier, VT 05609-1001 Ph: (802) 828-3171

Fax: (802) 828-2154

Virginia

Right of Redemption Period: Dependant on individual situation Deficiency Judgment Allowed: Yes

Contact:

Virginia's Attorney General's Office 101 N. Eighth St.

Richmond, VA 23219 Ph: (804) 786-2071 Fax: (804) 786-1991

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Washington

Timeframe from NOD Filing: TBD based on individual situations Right of Redemption Period: Dependant on individual situation Deficiency Judgment Allowed: Yes

Contact:

Washington's Attorney General's Office 905 Plum St., Building #3

P.O. Box 40100

Olympia, WA 98504-0100

Washington D.C.

Security Instrument: Trust Deed Judicial Foreclosure Available: No Non-Judicial Foreclosure Available: Yes Initial Public Notice: Notice of Default

Timeframe from NOD Filing: Approximately 60 days Right of Redemption Period: None

Washington, DC's Attorney General's Office Carvel State office building

820 N. French St. Wilmington, DE 19801 Ph: (302) 577-3047 Fax:(302) 577-3090

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West Virginia

Timeframe from NOD Filing: Approximately 60 days Right of Redemption Period: None

West Virginia's Attorney General's Office State Capitol

Room 26, East wing

Charleston, WV 25305-0220 Ph: (304) 558-2021

Fax: (304) 558-0140

Wisconsin

Timeframe from NOD Filing: TBD based on individual situations Right of Redemption Period: 1 to 3 Months

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Wyoming

Timeframe from NOD Filing: Approximately 90 days Right of Redemption Period: 3 Months

Wyoming's Attorney General's Office 123 State Capitol

Cheyenne, WY 82002 Ph: (307) 777-7841 Fax: (307) 777-5339

For more information on state foreclosure laws and regulations visit http://www.ncsl.org/public/leglinks.cfm and click on your state.