The Foreclosure Process and how to freeze it
Most people think that as soon as you receive a foreclosure notice, you’ve pretty much lost your home. This is simply not true. The foreclosure notice is the first step in a process that may take weeks or months to unfold. By understanding the foreclosure process, you can often gain more control over the outcome.
When you take out a loan to purchase residential property in Nevada, you typically sign a promissory note and a deed of trust. A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The deed of trust provides security for the loan that is shown by a promissory note.
Nevada primarily operates as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. Foreclosure is a non-judicial remedy under this theory. The document that secures the title is called a deed of trust.
The primary method of foreclosure in Nevada involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action but requires notice commonly called foreclosure by advertisement. When the trust deed is initially signed it will usually contain a provision called a power of sale clause which upon default allows a trustee to sell the property in order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale which typically occurs in the form of an auction. Because this is a non-judicial remedy there are very strict notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.
Missed Payments
Once a mortgage payment has been missed, the clock starts ticking in the foreclosure processes. You receive important notices from the servicer generally between 30 and 90 days after you miss a payment. So, if you have missed fewer than three payments, you’re not actually in foreclosure. Your mortgage servicer will probably send a letter or two reminding you to get caught up, as well as call you to try to collect the payments. Don’t ignore the phone calls and letters. This is a good opportunity to discuss loss mitigation options and attempt to work out an agreement (such as a loan modification, forbearance, or payment plan) so you can avoid foreclosure.
However, this phase is very important, because (a) you have to go through it before the foreclosure process can start, and (b) this is the phase in which you as a homeowner have the most options at your disposal.
If you are in the missed payment stage, this is the best time to rework your finances, to call your lender to work out a compromise, and to put your home on the market for a fast sale.
Power of sale
A clause in a mortgage that permits the mortgagee to sell the property, which secures the mortgage loan in the event that mortgage payments are not made in a timely manner.
Power of Sale Notice Requirements:
- Prior to initiating a foreclosure, the lender must serve a notice of default where a borrower has 35 days to cure any default. This must be sent by certified mail and the defaulting borrower has 15 days prior to the sale and after receiving this notice to cure any default. The foreclosure will stop if an intent to cure is filed with the Public Trustees office within this time frame.
- A notice of foreclosure sale must be made within 21 days of the date of the sale and at a time, place and manner as stated in the notice of default. Sale must take place in the same manner as an execution sale would occur in a judicial foreclosure.
In Nevada, the lenders can also go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. Usually if the deed of trust does not contain the power of sale language, the lender must seek judicial foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.
The Foreclosure Process in the state of Nevada typically takes about 6 months from the time the Notice of Default is filed to the Eviction of the homeowner.
It usually takes approximately 120 days to effectuate an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sales, or files for bankruptcy.
Notice of Default
Once a homeowner’s mortgage payments have not been made for 30 days or more, the lender records a public notice that the owner has defaulted on their mortgage, and then mails the notice to the homeowner. The Nevada nonjudicial foreclosure process formally begins when the trustee, a third-party, records a Notice of Default and Election to Sell (NOD) in the office of the recorder in the county where the property is located, providing three months to cure the default. What’s the cure? You can either work out an arrangement with the lender, sell the place or come up with the cash you owe.
A copy of the NOD must be sent to each person who has a recorded request for a copy and each person with an interest or claimed interest in the property by registered or certified mail within ten days after the NOD is recorded recordation.
Starts the foreclosure process – it is prepared, recorded, mailed, posted, published and a copy sent to all parties (owner, all lenders, IRS, local, state, and federal tax agencies) who have an interest in the property.
Reinstatement Period (Month 1)
Starts on the first day the notice of default is recorded. This is a 35-day period in which the homeowner can reinstate the loan by making any back payments, foreclosure fees and other allowable expenses.
Redemption Period (Months 2-3)
Starts on day 36 from the recorded date of the Notice of Default. Now the homeowner is now responsible for paying the remaining loan balance along with all foreclosure fees and other allowable expenses. It should also be noted that approximately 10 days before the end of the redemption period, the trustee will notify the lender for permission to prepare the Notice of Trustee Sale for publication.
Publication Period (Month 4)
Means the Notice of Sale must be published once a week for three consecutive weeks (21 days) prior to the Trustee Sale.
Trustee Sale (Month 5)
Is the final step in the foreclosure process and it is extremely important to remember the homeowner has no right of redemption after the sale is finalized. If there is a successful bidder at the sale, the new owner will purchase the property in “as is” condition with no warranties. If there are no bidders at the sale, the lender becomes the sole owner as an REO, short for Real Estate Owned.
REOs are sold in one of two ways. Most often, they are listed with a local real estate agent for sale on the open market; they are usually put on the multiple listing service (MLS) so that local buyers’ agents can show and sell the property to a qualified buyer for a commission.
Eviction (Month 6)
Process starts after the Trustee Sale is finalized. The eviction process is initiated by posting a 3-day Notice to Quit on the property. If there is no response, the new owner will file a 5-day Eviction Notice with the court. If there is no response by 5pm on the 5th day, the Constable will evict the resident.
Ways of stopping foreclosure in Nevada
So how do you go about stopping foreclosure? Here are 5 different steps that will help you avoid foreclosure.
- Stay calm
Before you make any quick decisions, weigh out all your options. Start the research.
- Contact your lender
Rather than avoiding the situation, contact your lender and come up with a financial plan on how you will be able to do the foreclosure rescue. If you’re aware beforehand that your payments might be late, you need to let them know.
- Workout options
We’re not talking about fitness – your lender can provide you with options that will work out your loan arrangement. From a modification, repayment options, reinstatement, to even claiming bankruptcy, you will be provided with certain options that may work in your favor.
- Refinance!
You are able to modify your loan and start with low payments and gradually move on to higher to compensate the difference.
- Sell your property.
Stop foreclosure by selling your house fast
Loan Workout
Up until the time your home is scheduled for auction, most lenders would rather work out a compromise that would allow you to get back on track with your mortgage than take your home in a foreclosure.
- Reinstatement
Paying the total amount owed by a specific date in exchange for the lender agreeing not to foreclose.
- Forbearance
An agreement to resume making monthly payments for a short period of time.
- Repayment Plan
An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
- Claim Advance/Partial Claim
If the loan is insured, a homeowner may qualify for an interest –free loan from the mortgage guarantor to bring the account current.
Loan Modification
The lender may agree to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended.
Refinance
If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender.
Short Sale
After your lender files an NOD but before they schedule an auction, if you get an offer from a buyer, your lender must consider it. If they foreclose on your home, the lender is going to simply turn around and try to resell it; if you present them with a reasonable short sale offer, they may see it as saving them the time, effort and trouble of finding a qualified buyer in a soft market. To be approved for a short sale, the seller (homeowner) must submit a loss mitigation application, which usually includes:
- a financial statement, in the form of a questionnaire, that provides detailed information regarding monthly income and expenses
- proof of income (if applicable)
- most recent tax returns
- bank statements (two recent statements for all accounts), and
- a hardship statement
Sell to a cash home buyer
Selling your home to a cash home buyer is becoming a popular way of stopping foreclosure. Not only are you able to sell your home fast – when you call, the offer is usually given within 24 hours and your home, if needed, can be sold in just 2 days.
Deed in Lieu.
If you are unable to sell your home through a short sale, another option to avoid foreclosure is a deed in lieu of foreclosure.
Just like with a short sale, the first step in obtaining a deed in lieu of foreclosure is for the borrower to request a loss mitigation package from the lender.
This sounds like it would be a great option, but actually has the same impact on a homeowner’s credit that foreclosure does. Lenders are very reluctant to agree to take a home back through a deed in lieu of foreclosure for a number of reasons: They fear the homeowner will sue later alleging they didn’t understand what was happening, the lender must pay any second or third mortgages or home equity lines of credit (HELOCs) off before executing a deed in lieu, and the lender wants to be certain that the borrower’s financial distress is real. Allowing the foreclosure process to proceed is one way the lender can be sure the borrower is not faking poverty.
As such, a deed in lieu of foreclosure is virtually never granted unless: foreclosure is imminent; the owner has had their home on the market for several months and been unable to sell it; there are few or no junior loans or liens the lender will have to pay off; the seller can document their financial hardship; and the seller initiates the process and documents the voluntary nature of their request for a deed in lieu. Even when all these factors are present, many lenders will not agree to a deed in lieu, but it is worth a try!
The application will need to be filled out and submitted along with documentation about your income and expenses including usually:
- a financial statement, in the form of a questionnaire, that provides detailed information regarding monthly income and expenses
- proof of income (if applicable)
- most recent tax returns
- bank statements (two recent statements for all accounts), and
- a hardship statement
Advantages to Borrower and Other Persons Liable on the Mortgage Debt
Advantages to a borrower in offering a lieu deed include, first, the release of the borrower and all other persons who may owe payment or the performance of other obligations secured by the mortgage. However, such persons remain liable if they agree to do so contemporaneously with the lieu deed transaction.
The second advantage to the borrower is the avoidance of the publicity, expense, and time involved in proceedings to enforce the mortgage loan and other obligations, with eventual loss of the property.
Third, it is possible that the lender will agree to pay all or part of the expenses of the transfer or even additional monetary consideration if there is equity in the property over the mortgage debt. However, the amount that a lender will pay is generally less than a third party would pay, if one can be found.
Finally, it is possible that the lender will grant certain limited possessory or other property rights back to the borrower, such as a lease of all or part of the property, an option to purchase, a right of first refusal, and the like. However, lenders generally resist granting such remaining rights to the borrower in order to obtain the property free and clear of all outstanding interests. If an option or a right of first refusal is granted, the lender will ordinarily limit the time within which it is available to a relatively brief period of time.
Disadvantages to Borrower and Other Persons Liable on the Mortgage Debt
The primary disadvantage to the borrower is the loss of the property, the income from the property, and the borrower’s investment in the property. The conveyance of the property is also taxable.
Claiming bankruptcy
The only guaranteed way to stop a foreclosure sale that quickly would be to file an emergency bankruptcy petition. When a bankruptcy is filed, an automatic stay goes into effect, stopping all collection activity, including foreclosure sales.
Bankruptcy is one of the most secret ways you can prevent foreclosure. It is often not mentioned in the most basic foreclosure prevention tactics. However, it is by far the best option if everything else fails.
Bankruptcy stops foreclosure dead in its tracks. Once you file a bankruptcy petition, federal law prohibits any debt collectors, including your mortgage lender, from continuing collection activities. Foreclosure is considered a collection activity, and so the day your lender becomes aware that you have filed for bankruptcy, the foreclosure process will effectively be frozen. But here’s the downside; once you get to court, the bankruptcy trustee’s role is simply to play referee or mediator between you and your creditors. Bankruptcy really just buys you more time to replace your lost job or recover financially from a temporary disability; it doesn’t let you off the hook for your debts. The law requires your mortgage company and other creditors to work in good faith with you to formulate a reasonable repayment plan so you can get back on track. Consult with a bankruptcy attorney regarding whether filing for bankruptcy is a good strategy for you.
It delays the foreclosure process by several months, buying you enough time to come up with a financial plan.
Filing Chapter 13 or Chapter 7 bankruptcy enables the automatic stay order. Automatic stay order simply means that your creditors are unable to collect money from you instantly. This is the best way to legally postpone foreclosure as the bankruptcy goes through the pending process for 3 to 4 months.
Filing bankruptcy for the purpose of stopping a foreclosure sale is not a permanent fix, but it does allow homeowners to buy some time while exploring their options. Most of the time when people come to me to stop a foreclosure sale, their goal is to keep their home long-term. Using a bankruptcy to stop a sale often can bring a lender back to the negotiating table and add time to start, or continue, the loan modification process.
Once the bankruptcy is filed, all creditors, including your mortgage company, must cease collection efforts. Your mortgage company would basically have to file a Motion to Lift Stay and seek permission from the Bankruptcy Court to proceed with the foreclosure. You would have to basically resume making your mortgage payments to keep your home in a Chapter 7 Bankruptcy, or you risk losing your home if the Bankruptcy Judge grants the Motion to Lift Stay.
Please note that this time might be shortened if your creditor takes things to court and is able to proceed the sale. Bankruptcy must also be considered before the notice of foreclosure is given, otherwise the creditor will be able to proceed with the sale.
Assumption/Lease-Option.
Most loans these days are no longer assumable. The average mortgage now contains a “due on sale” clause by which the borrower agrees to pay the loan off entirely if and when they transfer the property. However, if you are facing foreclosure, you might be able to persuade your lender to modify your loan, delete this clause and allow another buyer to assume your loan. The lender may want to assess the new buyer’s qualifications, but it can be a win-win-win option for all. You might be able to negotiate a down payment from the buyer which you can use to pay off your outstanding past due mortgage balance.
In a lease-option scenario, the buyer becomes your tenant, and you continue owning the property until the buyer has saved enough down payment money, improved their credit sufficiently or sold their other home. In some situations, the buyer will make a one-time, lump option payment upfront, paying you to obtain the option to purchase your home. You can apply the option payment to bringing your mortgage current. Then, the buyer will make lease payments monthly which you, the seller, then apply to your mortgage. To successfully use a lease-option to stop the foreclosure process, you must negotiate lease payments that cover most or all of your mortgage payment, property tax and insurance obligations — enough that you can make up any difference and still pay to live somewhere else.
Whatever your reasons for struggling with your mortgage, you will be worrying and losing sleep. Giving an investor, a lease option can turn your situation around in a short time. Not only will you be relieved of your debt, you will have real peace of mind, knowing that the people living in your house are looking after it as if it were their own.