Foreclosure Law
Confusing messages to Borrower
Make sure that your attorney gives the borrower the same message that you do. Your attorney may be telling the borrower that the lender is proceeding with the foreclosure while you are telling them that you’ll try to work out the loan, perhaps by re-amortizing it and/or adding the late payments to the end of the loan.
The borrower won’t know what is going on!
Dealing with tenants in the house
Often the house will be rented. Your attorney should always serve papers on the tenants. if you do not know if it is rented then they should be served as “Unknown tenants” at the property address. If the tenant refuses to move after the foreclosure sale, they can be evicted by the Sheriff, (in Florida, check your state) who will execute a Writ of Possession.
We recommend making contact with the tenant during the foreclosure. They will often feel especially angry as “they” have done nothing wrong. Perhaps you can work out a deal whereby they would continue renting the house, or perhaps buy it from you. Of course if you are outbid at the foreclosure sale, you have got paid in full and it is someone else’s problem.
In the past we have come across tenants who had an agreement to buy the house from the borrower and have even paid them a deposit. Consider giving them credit for the down-payment, even though you did not receive it. A sale to a sitting tenant will save you a lot of time and money!
One thing you definitely do NOT want is for the outgoing tenant to trash the house before being kicked out.
Bankruptcies
It is common for borrowers to file for bankruptcy to stop a foreclosure. They will often do this the day before the foreclosure sale. This creates an automatic stay. You cannot proceed with the bankruptcy or even contact the borrower.
The lender now has to file with the bankruptcy court a motion to lift the automatic stay. This buys the borrower another 2-3 months of free housing. Even worse, sometimes after the stay has been lifted, they will dismiss the bankruptcy, only to file again the day before the sale is due to take place. They can do this again and again until the court gets fed up with their game playing. Usually this could take 3 or 4 times.
Bidding at the sale. Judicial Foreclosures
Laws of bidding at foreclosure sales vary from state to state. Florida for example has no right of redemption after the sale. It is common for the seller’s attorney to bid $100 if there are no other bidders. This saves on documentary stamps. But in other states that have a redemption period, this might mean the borrower could “buy the house back” for just $100. Be guided by your attorney.
After the sale
Some states, such as Florida, permit the lender to pursue a deficiency judgment against the borrower if the house does not sell for enough to cover the loan and costs. Others, such as California, do not permit this. Again check with your attorney for the applicable laws in your state.
