Foreclosure Flashcards
What is foreclosure?
Foreclosure is a legal enforcement of a lien by a lienor usually because of the lienee.
This results in a forced sale.
Foreclosure sales are conducted by auction, with highest bidder receiving the property. Lender may bid at the sale and in many cases is the sole bidder.
Mortgage Foreclosure
If borrower defaults and unable to pay under promissory note then lender accelerates note to start foreclosure process.
Foreclosure terminates all rights of borrower.
In judicial foreclosure there is no upset price (minimum). The opening bid can be any amount.
Foreclosure terminates interests junior to mortgage but will not affect senior interests.
The buyer at a foreclosure sale has to pay off any senior mortgage or risk having senior mortgagee foreclose.
What is a deficiency Judgement?
A deficiency judgement results when foreclosure sale proceeds are insufficient to satisfy mortgage loan debt.
A mortgagees promissory note survives a foreclosure sale, though the mortgage of the foreclosing mortgagee and any junior mortgage is cancelled.
The mortgagee’s promissory note allows for mortgagor to be sued.
The judgement states amount owed. It is called deficiency judgement because mortgagee’s remedy is the difference between the foreclosure sales price and the debt owed by the mortgagor (deficient amount).
The deficient amount is limited between the debt and the property’s fair market value when the fair market value is higher than the foreclosure price.
In a judicial foreclosure, the mortgagee can seek a deficiency judgement in the same action.
In Hawaii, regarding non-judicial foreclosure, the lender cannot seek a deficiency judgement against an owner-occupant unless debt is secured by other collateral.
Foreclosure can be a lengthy process.
In Hawaii judicial foreclosure is a longer process than a non- judicial.
About ½ of the states allow non- judicial w/ power of sale.
Typically no-judicial foreclosure is associated with the deed of trust.
Proceeds of Sale
Pay expenses of sale including commissioner’s fee, attorney’s fee and court cost.
Pay real property taxes
Pay principal and accrued interest on foreclosed loan
Any jr. Liens in order of priority
Any remaining proceeds are distributed to mortgagor.
After purchase, the foreclosure buyer is responsible for:
Recordation fee
Prorated real property taxes
Cost of securing possession
And if there is a recorded delinquent common assessments, then the BOD of AOAOcan collect a 6 month assessment.
Foreclosure buyer takes title as it existed when mortgage was placed on property.
Thus foreclosure will terminate interests to Junior. Mortgage being foreclosed but will not affect senior interests.
Types of foreclosure
Judicial Foreclosure is initiated by a lawsuit. It is subject to court confirmation.
Non- Judicial Foreclosure (power of sale)
Judicial Foreclosure
In Hawaii it is subject to court confirmation.
The 1st round is public auction at courthouse lanai.
The 2nd is confirmation hearing ( about 5 weeks after the first rd)
Commissioner becomes legal owner prior to confirmation hearing; therefore the buyer will acquire title by a commissioner’s deed which contains no warranties.
Non-Judicial Foreclosure
No court action involved.
The foreclosing party must be:
A Condo AOAO
Time share AOAO
Vender under agreement sale w/ power of sale provision
A mortgagee under a mortgage w/ power of sale provision
Initiated by foreclosing party’s attorney. Therefore there is one round of bidding going to the highest bidder
In Hawaii, owner-occupied residential borrowers, in a non-judicial foreclosure, have right to request a dispute resolution. Like mediation, prior to foreclosure.
If borrower requests, the mortgagee is required to participate
Or the mortgagee may opt to judicially foreclose. The results in a longer foreclosure process and this law has caused an increase in judicial foreclosure.
REO : Real Estate Owned Property
Is a property that is sold through a foreclosure auction in which the foreclosing lender is the highest bidder.
Usually the only reason the lender bids is to protect its interest to recoup some of its loss.
Typically, the borrower owes more to the lender than the market value of property.the property then becomes part of lender’s inventory. Usually lender’s want quick turnaround so do not have to deal with maintenance costs and property management to increase capital.
Lender’s usually put little investment into property and sell “as is”.
Redemption is a right a property owner has in real property.
What are the 2 types?
Equity of redemption
Right of redemption
Equity Redemption aka Equitable Right of Redemption
It is the right a mortgagor has to redeem his real property PRIOR TO FORECLOSURE.
IFI MORTGAGOR defaults on a mortgage or a promissory note w/ an acceleration clause,the mortgagor has right to pay full balance w/ accrued interest, prior to foreclosure, foreclosure is avoided.
A mortgagor’s is equity of redemption cannot be waived. Equity of Redemption applies to ALL TYPES OF FORECLOSURE INCLUDING REAL TAX FORECLOSURE.
Right of Redemption aka Statutory Right of Redemption
This right of redemption allows property owner to redeem his real property AFTER foreclosure of his property.
In Hawaii, the right of redemption applies ONLY to real property tax foreclosure..
Not Mortgage foreclosure.
The foreclosure sales results in a new owner with”reservation for the redemption period”
Former owner, within ONE year has a right to pay
The cost of the foreclosure sale and
The foreclosure sales price plus interest to repurchase his former property.
About ½ the states have the right of redemption.
