Foreclosure is the process by which a bank or lender takes possession of collateral used to secure a loan. Put another way, foreclosure happens to a homeowner when he or she doesn’t pay their mortgage.
Two Types of Foreclosure
There are two types of foreclosure: judicial foreclosure and trustee’s sale (non-judicial) foreclosure. Some states use one or the other, and some states use both (the lender can usually choose which manner of foreclosure in states that allow both). Judicial foreclosure is just like it sounds: it is a lawsuit by a bank against a lender to secure a judgment of foreclosure. This means paperwork, court proceedings, motions, orders, appraisals, and a formal auction. As such, judicial foreclosure is more expensive for a bank, and takes longer. For information on foreclosure specific to California, read California Foreclosure Law.
A trustee’s sale is a speedy procedure for a bank: The trustee names in the deed of trust (mortgage) simply needs to record a public notice of default to initiate a non-judicial foreclosure against the owner. No court intervention is required. If the owner doesn’t pay in a certain amount of time, the trustee can schedule a public sale of the property.
After a foreclosure, a deed is recorded in the county records showing the new owner as a purchaser of the property in the foreclosure action.
Eviction After Foreclosure – How Long Can I Stay in My Home?
Foreclosure terminates the right of a borrower to remain in possession of a property. However, that does not mean that a borrower must leave immediately upon foreclosure. A lender repossessing a property, or a buyer in a foreclosure, must still honor eviction laws following a purchase in foreclosure. What that means is that if and when a bank repossesses a home in which you were the borrower, and you are still living in the home, the bank cannot send the police, thugs, realtors, or anyone else to unilaterally kick you out–the new owner of the home must follow the legal procedures set forth in your state to evict you.
See the next article in the series: What Is a Deficiency Judgement in a Foreclosure | Debt After Foreclosure, and then Credit Repair After Foreclosure.
What that means in terms of time will differ from state to state, but at the very least–even if the new owner works terribly quickly–you might remain in possession for a few weeks; in practical terms a few months is more realistic. But, keep in mind that following a foreclosure, the clock is ticking fairly quickly, and the day of reckoning will come–you will eventually be evicted from your home. Most folks simply leave either before or upon foreclosure, but some unfortunate folks have nowhere to go, so they linger at the home, hoping to use the extra few weeks to get a foothold at a new job and save a few dollars for the next steps, which are never easy.
Keep in mind that when one remains in possession of a foreclosed house, you are essentially a “squatter”–and when you are sued for eviction (and you eventually will be if you don’t either leave or contact the new owner), you will also be sued for the rental value of the home in the post-foreclosure period. An eviction proceeding is a court case, with the filing of a complaint, service of the complaint, court dates, and ultimately a trial. Most jurisdictions have a speedy procedure, but it’ll still takes weeks or months. Letting such a case go all the way is hardly prudent though, but this reality gives you a good bargaining chip to get a reprieve of a few weeks.
A prudent approach might be to contact the new owner (they might actually contact you to find out if you intend to leave voluntarily) and ask for a few weeks before leaving. Most owners would agree to something reasonable rather than go to court to evict you. Keep in mind that an eviction proceeding is a separate legal proceeding from the foreclosure proceeding. It’ll be a different case, before a different judge (most likely), and might even be in a different court. It’ll also hurt your credit independently of the foreclosure, so tread lightly and communicate with the new owner.