Some of the most frequently asked questions about foreclosure follow:
What is Foreclosure?
When you are behind on your house payments, your creditor may try to take your house back and sell it to get the money you owe. This process is called foreclosure.
What do all these words used in a foreclosure mean?
Understanding the legal terms involved with such a process can help you better help yourself. Some definitions for you to know are:
- DEFAULT - A mortgage or contract is in default and foreclosure proceedings can begin as soon as you are late on one payment. Depending on the language in your loan documents, the lender may be required to give notice before beginning a foreclosure.
DELINQUENT PAYMENT - A mortgage payment is delinquent when it is not made on the day that it is due or within any "grace period" allowed by the lender.
FORBEARANCE - An agreement where the lender agrees not to proceed with foreclosure and allows you to catch up your past due payments over a period of time. These payments are intended to catch up your debt and bring the loan current.
FORECLOSURE SALE - The forced sale by which your lender sells your property to pay your loan. A foreclosure sale adversely affects your credit rating and other future financial opportunities. The foreclosure sale takes place at the County Courthouse.
DEED IN LIEU OF FORECLOSURE - To avoid foreclosure when you know you will be unable to make your payments, you may consider handing over your deed to the lender. This is also called voluntary repossession. It means you are giving your house back to the lender. This may still affect your credit rating, but you may be able to avoid the expenses of the foreclosure process.
JUDGMENT – In a judicial foreclosure, an order saying you owe money to the lender. The lender is then entitled to recover the money through a foreclosure sale. In a non-judicial foreclosure your lender is not required to obtain a judgment before holding a foreclosure sale.
DEFICIENCY JUDGMENT - If your house is sold at a foreclosure sale, for less than the amount due on the loan, plus expenses of foreclosure, a lender may be able to obtain additional money from you to recover his/her losses.
How can I avoid foreclosure?
To avoid foreclosure proceedings, your mortgage payment should be your top priority each month. The lender does not generally want to foreclose on your property because it takes time and money to go through the foreclosure process.
What if I can’t make a house payment?
If you cannot make a payment, it is important to contact your mortgage company before you miss that payment to make payment arrangements. If you are able to make payment arrangements, be sure to get the terms of the arrangements in writing. Discuss with your lender how much you owe and how long it will take to catch up on any missed payments. Be prepared to answer such questions as why you fell behind on your payment, what your current financial resources are, and if you have a realistic plan for repaying the money you owe. If you go to your lender with a good attitude and are honest, your problems will likely be much easier to solve.
You may also ask your lender about applying for a loan modification. If you qualify, the lender can reduce your monthly payments to an affordable level and not foreclose. For more inofrmation on this possibility, speak with a foreclosure counselor at Salt Lake Community Action Program. Their number is 801-359-2444 or 888-995-HOPE.
What are the different kinds of foreclosure procedures?
In Utah, there are different kinds of foreclosure procedures, depending on whether your house was financed with a Trust Deed, a Mortgage, or a Uniform Real Estate Contract. See below for further information.
What is a Trust Deed Foreclosure?
To foreclose on a Trust deed, a creditor must follow these steps:
- A trustee, usually the lender, a title company or an attorney, records a Notice of Default at the county recorder's office. The Notice of Default includes a statement of why the trustee believes your loan is in default. The usual reason is that the borrower has not made the scheduled payment. A trustee is required to give written notice of the default to the borrower and anyone who has filed a Request for Notice. This is usually done by registered mail. Always arrange to get any letters sent by registered mail. The Notice is valid even if you fail to sign for it or pick it up from the post office.
- You will likely receive a copy of the Notice of Default. However, if you suspect that you are in default, you should check with the county recorder and with your lender to see if a notice of default has been filed. You may also file a Request for Notice with the County Recorder's Office to insure that you are notified of any default. A notice of default does not mean that you have to move out immediately, but you will be required to move once the sale of the property is final.
- After the Notice of Default is filed, you must make arrangements with your creditor to cure the default. This means you must make the loan current, which includes remitting any past due payments, late charges, collection charges incurred by the lender and legal fees. This must be done within three months of the recording of the Notice of Default. Otherwise, after the lapse of at least three months the trustee can issue a Notice of Sale and require you to pay the entire loan in order to avoid losing your property.
- If you do not cure the default within three months of Notice of Default, the trustee must give written notice of the time and place of the sale. This is done by:
- Placing an advertisement in a newspaper of general circulation once a week for three consecutive weeks. The last notice must occur more than 10 days but less than 30 days before the date of sale; and,
- Posting a Notice of Sale at least 20 days before the date of sale on the property and in at least three locations in the county where the property is located. Once the Notice of Sale has been advertised and posted, the sale can be postponed by the trustee. Once the Notice of Sale has been issued, you must pay the entire loan balance plus any other charges including late charges, collection charges, and legal fees, to redeem the property. If you cure the default by making your required payments or paying the entire balance, you should request the trustee to file a Cancellation of Notice of Default.
- If the sale goes forward and the house is sold for less than you owe the lender, the lender may, within three months after the sale, sue you for the balance due on the obligation plus expenses. This is called a deficiency judgment. The deficiency judgment will be limited to the amount by which the debt plus interest, costs, and expenses of sale--including trustee's and legal fees-- exceeds the fair market value of the property as of the date of the sale. The fair market value is equivalent to what the property would normally sell for to the average buyer as of the date of sale. The fair market value is not necessarily the amount the property was purchased for at the Trustee's Sale.
What is a Mortgage Foreclosure?
When a trust deed or mortgage goes into default, the lender has the right to declare the entire balance of the loan immediately due and file a lawsuit to collect the debt. To foreclose on the property in this manner, the mortgage holder must file a summons and complaint and have them served on you. You must file a response to these papers in court. It is not a defense that you cannot afford the payments.
Once the mortgage holder has a judgment against you, a sheriff can serve an order on you called a writ of execution that allows your house to be sold to satisfy what you owe on the mortgage.
Once the property sells, you have six months to redeem the property. This means that to get your property back, you must pay the amount the property was purchased for at the foreclosure sale plus any costs incurred by the mortgage holder, plus a 6% redemption fee.
If you do not redeem the property, the purchaser will get a deed once the six month period is over, and you are legally obligated to leave. You are not required to pay rent during the six month redemption period.
The mortgage holder is entitled to a deficiency judgment if the foreclosure sale price is less than the full amount owed. The mortgage holder can obtain a deficiency judgment even if the actual value of the mortgaged property exceeds the debt plus associated costs. The mortgage holder is entitled to judgment based on the purchase price of the property at the foreclosure sale rather than the fair market value of the property at the time of the sale.
What is a Uniform Real Estate Contract Foreclosure?
If you are purchasing your house through a Uniform Real Estate Contract and the seller wants to foreclose, you must be given written notice stating the specific provision of the contract of which you are in default.
After you receive this written notice, you then have the period provided under the contract, usually 30 days, to cure the default, which includes making any past due payments plus paying the seller's costs and legal fees. If you fail to cure the default, the contract may allow the seller to elect one of the following remedies:
- The seller may declare that you are a tenant at will and keep all payments that have been made under the contract. However, if you have substantial equity in the property, the court can refuse to enforce this provision. The court may either require the seller to proceed under options (2) or (3) or may require the seller to return a portion of your payments minus costs and legal fees.
- The seller may bring suit and recover judgment for all delinquent installments, costs, and legal fees.
- The seller may treat the contract as a mortgage and proceed under the mortgage foreclosure statutes.
How can I get more help if my house is being foreclosed?
In addition to the loss of your home, foreclosure can hurt your credit rating and cost you time and money. Many foreclosures can be avoided with good budgeting, money management, and financial planning. If you do find yourself in financial trouble with a possible foreclosure, you should call a foreclosure counselor at a consumer credit counseling service:.
Use the information in this handout as a guide and be sure to get advice from a private attorney about your specific case. If you have further questions, try calling the Community Action Program in Salt Lake at 359-2444 or Utah Legal Services, 328-8891 in the Salt Lake area or 1-800-662-4245 statewide toll free.
What if I am a tenant who rents but does not own the property?
If you receive a notice of deficiency or notice of a foreclosure sale you should continue to pay your rent just as before. Only when a foreclosure sale actually occurs will there be a new owner. After the foreclosure sale takes place, the new owner may end your tenancy with proper notice. Proper notice could be a five (5) day tenant-at-will notice.
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