Homes For Sale

When a borrower is in default on a loan, the lender accelerates the due date of the debt to the present and gives the debtor notice of default demanding the full loan balance be paid at once. If the debtor fails to do so, the lender files a lawsuit, called a foreclosure action, in a court of jurisdiction where the land is located. There are some differences in how foreclosure proceedings progress, depending on the state and county in which the action takes place.

Under a foreclosure action, the court determines whether the lender is rightfully owed the money. If the court finds in favor of the creditor, a judge will issue an order of execution directing an officer of the court, usually the county sheriff, to seize and sell the property. The public is notified of the place and date of the sale via advertising that runs for a specified number of weeks in a newspaper circulated in the county. On the sale date, a public auction is held at the courthouse where anyone can bid on the property. The minimum bid is a set percentage of the appraised value (two-thirds is a common figure), as determined by three disinterested appraisers who live in the county. The minimum bid requirement is set by law to protect whatever equity the debtor may have in the property, since a bidder cannot simply get a bargain by paying just the mortgage balance. The property is sold to the highest bidder, with proceeds used to pay costs of the sale and to pay off the mortgages and liens. Any surplus funds go to the debtor.

If the property does not bring enough money at the sale to pay off the mortgage, the creditor may be able to obtain a deficiency judgment which is a court order stating that the debtor owes money to the creditor when the collateral property does not bring enough at a foreclosure sale to cover the entire loan amount, accrued interest, and other costs. The deficiency judgment is a personal judgment against the debtor that creates a general and involuntary lien against all real and personal property.

Debtors may be able to redeem their property from the time a notice of pending foreclosure, called a lis pendens, is filed until the confirmation of the foreclosure sale. This is done by paying the court what is due, which may include court costs and attorneys’ fees. In some states, this right to save or redeem the property prior to the confirmation of sale is called the equitable right of redemption. Some other states use the statutory right of redemption, which allows debtors to redeem themselves after the final sale. Once the redemption is made, the court will set aside the sale, pay the parties, and the debtor gains title the property again.

One other option debtors have to avoid foreclosure is to make a voluntary conveyance, also called deed in lieu of foreclosure. With this action, debtors still lose the property, but by returning it voluntarily before final court action, they avoid having a foreclosure on their credit report.

Joe Jesuele is the founder and president of NJ Mortgage, a residential mortgage lender in Southern New Jersey. He is also the founder of Northern Liberties Real Estate, a residential and commercial real estate development company based in Philadelphia.

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