Bankruptcy may be an option to stave off foreclosure. If an individual files for bankruptcy before a foreclosure action is initiated, an automatic stay may prevent the foreclosure from moving forward. Chapter 7 may delay a foreclosure for months and Chapter 13 may allow individuals to save their homes. Experienced legal professionals can be of assistance in utilizing bankruptcy to positively influence a foreclosure action.
Many states have homestead exemptions that protect the home in which a family lives from being sold to satisfy debts held by judgment creditors. These exemptions do not protect from foreclosure by a mortgage holder, or the trustee, under a deed, or trust where the home secures a loan for the purchase money.
The foreclosure process begins when a borrower/homeowner defaults on loan payments for a mortgage, and the lender files a public notice of default which is called a Notice of Default, or Lis Pendens. Individuals should speak with a Texas foreclosure attorney who may offer legal alternatives to foreclosure actions, based on state laws and the financial position of a homeowner.
Judicial foreclosures. A judicial foreclosure (28 USC § 2410) goes through the court system and may move more slowly than a non-judicial foreclosure. Benefits to homeowners include time to seek legal counsel and devise a strategy to oppose the foreclosure process. Judicial foreclosures can last from months to years, depending on the state where the foreclosure action is filed. The mortgage servicer must wait until a borrower is at least four months delinquent on payments to begin action, by notifying a homeowner and filing a lawsuit in the county where a property is located. The petition for foreclosure will outline reasons for foreclosure for a judge to sign off. A Texas foreclosure attorney can help with a defense that justifies the payment delinquency.
Non-judicial foreclosures. Non-judicial foreclosure (26 USC § 7425(b)) actions often proceed faster than judicial foreclosures and can be completed within months. The majority of states allow non-judicial foreclosures, that usually start when the lender’s trustee records a notice of default at the county recorder’s office. The notice of default is mailed to the borrower in most cases, and may offer a chance to cure the default before the foreclosure sale can be held.
Foreclosure common outcomes.
- The homeowner/borrower pays off the default amount during a grace period specified by state law, known as pre-foreclosure and reinstates the loan.
- The homeowner/borrower sells the property to a third party during the pre-foreclosure period and the proceeds are used to pay off the loan.
- The home is sold to a third party at a public auction at the end of the pre-foreclosure period.
- The lender takes ownership of the property with the intent to sell it, either by agreement with the homeowner/borrower during pre-foreclosure through a short sale foreclosure, or through purchase at the public auction.
26 USC § 7425(b)
28 USC § 2410
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