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There is a common misconception that once a homeowner misses a payment he is immediately in danger of foreclosure. The reality is that foreclosure is a legal process that a lender must go through in order to take possession of a property for which it holds a mortgage.
The Foreclosure Process in TennesseeThe below information covers the most common foreclosure process used by most lending institutions in the state of Tennessee. It would be impossible to completely cover foreclosure law in this space. You are encouraged to consult a real estate attorney if you desire to go more in-depth.
- Default: The homeowner must miss a payment. Default on payment is the only way a property can enter the foreclosure process. This can also be a missed payment to a local taxing authority, a condo association, or homeowners association.
A lender usually has the right to start the foreclosure process following a single missed payment. However, most mortgage companies typically wait until a homeowner is three or more months behind before formally getting started.
Most deeds of trust in Tennessee contain a “power of sale” clause that allows the lender to conduct a non-judicial foreclosure. In essence, when they sign the loan at closing, borrowers pre-authorize the lender to sell off the property in the event of default.
- Legal Notice: The lender or foreclosing party must notify the owner that they are entering into the foreclosure process. In the non-judicial process, a notice of sale must be published at least three times in a newspaper regularly published in the county where the home is located. Additionally, if the borrower is still in possession of the property, he must be served with a notice of sale at least 20 days before the scheduled foreclosure sale.
- Bank Sale or Auction Date: The lender normally appoints a substitute trustee who conducts the foreclosure auction with the property going for cash to the highest bidder. Typically, the bank makes the initial bid on the property and ends up buying the house if no investors make a higher bid.
- Redemption Period: In Tennessee, the redemption period has largely gone the way of the dodo once banks began having borrowers waive their right of redemption when they signed the original deed of trust.
Deficiency JudgmentIn Tennessee, the lender can obtain a deficiency judgment against a homeowner for any amount they are unable to recover through a foreclosure or short sale. This means that if you have a mortgage for $200,000 and the bank forecloses and sells the property at auction for $125,000, they could possibly obtain a deficiency judgment for $75,000.
This allows the bank to pursue collections against the homeowner for $75,000. In most cases this does require an additional legal action against the homeowner to obtain a judgment. This is another reason that it is so important to exhaust every option a homeowner may have to avoid foreclosure. This does require a separate action to be filed in court, causing the mortgage company to incur further expense. The lender is also acutely aware of the borrower’s inability to pay so they often see further collection efforts as fruitless.
The Opportunity Window – Pre-foreclosureThe period of time between the first missed payment and the final bank sale date is called “pre-foreclosure” since the process has begun, but the owner has not lost control of the property. This is a critical time for the homeowner since he can still legally list the house for sale, sign contracts, and do what he can to avoid foreclosure. Also, a short sale typically brings more money for a property than the mortgage company can get from an investor at auction, which means a smaller deficiency judgment against the homeowner, if the bank pursues that option.
Opportunity Lost – REO PropertyIf a property makes it all the way through the foreclosure process, one of two things happen at the end: it is either sold to the highest bidder at auction, or very often it is taken over by the bank as an owned asset. REO stands for Real Estate Owned. The bank does not want to take over a homeowner’s property, however when the foreclosure timeline runs out and the house does not sell at auction, the bank has no other choice. At that point, the bank’s REO or Owned Asset department takes control of the property and there is no further opportunity for the homeowner.
The other major issue with REO property is that once a lender takes over a property and puts I back on the market, many times they do so at highly discounted rates. These properties will often be the lowest priced in a neighborhood, meaning the bank will likely receive much less from the ultimate sale of the house than they would have from a short sale.
Reasons to Avoid Foreclosure
Surprisingly, many homeowners facing foreclosure simply throw in the towel because they don’t understand the process, think they have no options other than foreclosure, or the mental and emotional strain of pending foreclosure simply beats them down until they no longer care what happens.
Here are some reasons why you should fight to avoid foreclosure.
- You will always have to disclose that you have had a foreclosure on any mortgage application and many job applications that you submit in the future. This can have ad adverse affect on your future mortgage rates. This is the only credit item that is asked specifically and does not rely on what is on an individual’s credit report. So even though the foreclosure drops off your credit report in about 10 years, it really stays with you forever.
- Credit scores will be lowered by 300+ points and a foreclosure is the most devastating credit issue you can have in relation to future credit availability.
- A foreclosure is the one credit report item that is impossible to have “repaired.”
- Your lender can seek a deficiency judgment against you and collect for any amount they do not recover at bank sale.
- Many employers run credit checks and a foreclosure can put a current position in jeopardy.
- Security clearances and government positions, including but not limited to military and law enforcement, can be jeopardized by a foreclosure.
- You may be responsible for any deficiencies after foreclosure for an indeterminate period of time; this can land you in never-ending collections.
- We at John Jones Real Estate are ready, willing, and able to help you explore every available option and work with you towards achieving the most positive outcome possible.
- While it may not seem like it now, there will come a time where your current financial troubles will pass. You will feel much better knowing that you did everything you could to avoid this devastating financial consequence so many people face today.
- Avoiding foreclosure takes only effort and paperwork on your part.
We can help. Call us 1-800-239-2513 ext. 2044 for FREE recorded info or email us at John@JohnCJones.com