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Foreclosure Fraud

How to Protect Yourself from Foreclosure Frauds and Scams

What is a Foreclosure?

Before we dive into the gory details on what foreclosure fraud is and how homeowners need to protect themselves from scam artists let us all agree on what a foreclosure really is. This brief overview will also help you to understand where distressed homeowners are the most vulnerable to foreclosure fraud.

There are two primary types of foreclosure procedures: judicial and non-judicial, but they both follow generally follow the same process. Judicial procedures are followed by states that use mortgages to secure any loans on the property. Non-judicial procedures are used by states that use deeds of trust to secure the property.

A. Pre-foreclosure

Once the NOD is filed, homeowners will start getting deluged with mail, phone calls, and people knocking at their doors offering to help them. Within this group of saviors are the foreclosure scammers and fraudsters.

Pre-foreclosure is the situation where a homeowner has fallen behind in payments, but has not yet received a notice of default that foreclosure proceedings have begun. The homeowner may be behind in payments and is receiving phone calls and letters from their lender, but knowledge of the situation is still private. The public does not yet know that the homeowner is behind on payments.

B. Foreclosure

A foreclosure is basically when a person becomes late on making their monthly house payments and the lender begins a process to take the property back. Most foreclosure proceedings will start with the lender recording a notice of default (NOD) or a lis pendens at the county courthouse, where the property is located. You will also see the term “repossession of property”, which foreclosure is sometimes referred to.

While the general process is similar from state to state, the actual procedures tend to vary.

When a homeowner has missed three to six months of loan payments, the lender orders a trustee to record a Notice of Default (NOD) at the County Recorder’s Office. This puts the homeowner on notice that they are facing foreclosure. The borrower then has a reinstatement period in which they can bring all of their missed payments current. Homeowners will typically have up to five to seven days before the foreclosure auction to reinstate their loan (bring it current and pay all the penalties).

If the default isn't corrected (catching up on all the back loan payments) a foreclosure sale date is set. The homeowner will be served with a Notice of Sale. This notice will also be posted on the property and recorded at the County Recorder’s Office in the county where the property is located. This Notice of Sale is also published in a local newspaper in the county.

C. Foreclosure Auction

Foreclosure Trustee Sales are done as auctions and usually take place on the steps of the county courthouse in which the property is located. The time and location of the auction are designated in the Notice of Sale. At the Trustee Sale, the property is auctioned in public to the highest bidder. The winner of the auction will receive the trustee’s deed (title of ownership) to the property.

At auction, an opening bid on the property is set by the lender that is foreclosing. This opening bid is usually equal to the outstanding amount of loan balance, interest accrued, plus any other additional and attorney fees associated with the Trustee Sale. If none of the auction bids are higher than the opening bid, the property will be purchased back by the lender.

If the bank/lender takes the property back it is called a REO or Real Estate Owned. This most often occurs because many of the properties up for auction are worth less than the total amount owed to the bank or lender.

When a property is purchased at a foreclosure sale, all junior liens (2^nd and 3^rd mortgages, contractor liens, etc.) other than property taxes or IRS liens are wiped out.

D. Timeline

As borrowers fall behind in their payments they can expect their lenders to react in certain ways at specific times. Here's an overview of the time line from late payment to foreclosure. Timelines may vary by lender and homeowner’s circumstances.

Days	Description
Day 1	The mortgage payment is due on the first of the month, but the borrower misses the payment.
Day 16-30	The lender assesses a late charge on the missing payment. The company that processes borrower's payments (called a mortgage service company) starts calling the homeowner to find out why payment has not been made.
Day 45-60	The mortgage servicer sends a "demand" or "breach" letter to the borrower demanding payment and describes that the terms of the mortgage have been violated. The borrower is given 30 days to rectify the situation by paying the delinquent amount and late charges.
Day 90-105	The loan service company refers the loan to its foreclosure department and hires a local attorney, or other company, to begin foreclosure proceedings. Depending on the state in which the home is located, the servicer's attorney or representative may record a formal notice of foreclosure at the local courthouse, publish details of the debt in the local newspaper, attend hearings on the case and make appropriate court filings.
Day 150-415	The house is sold at a foreclosure sale or auction. The wide range in days is due to the fact that different states have different requirements. Borrowers in those states with judicial foreclosures, or those in which lenders have to retake property titles via the court system, can get almost a year to straighten out their affairs before the foreclosure sale. Those in non-judicial states have as little as two months.
Day 150-415+	After the sale, some states grant borrowers a "redemption period" in which they can repurchase their property, provided they have the money to pay all the missing payments, late fees, attorney fees, etc. Other states force the homeowner out immediately after the auction.

The terminology and type of foreclosure varies by state. Some states use a Judicial foreclosure while some use a Non-Judicial foreclosure. Most of us call everything a mortgage even though it is really a Deed of Trust. If you check your closing (settlement) papers or you loan paperwork you will be able to tell if it is a Mortgage or a Deed of Trust.

The following chart shows a comparison of the processes of Mortgage Judicial Foreclosure and Trust Deed Non-Judicial Foreclosure.

Mortgage Judicial Foreclosure	Trust Deed Non-Judicial Foreclosure

Borrower Defaults	Borrower Defaults

File Complaint (Initiate Law Suit)	Beneficiary authorizes Trustee to proceed with Foreclosure

Record Lis Pendens	Record Notice of Default (NOD)

Court Hearing Date set for Sale	Period of Equitable Redemption Trustor can reinstate

Advertise the Sale	Advertise the Sale

Sell to highest bidder Buyer pays cash at sale.	Sell to highest bidder Buyer pays cash at sale.

Buyer receives Certificate of Sale	Trustee conveys Trustee's Deed to Buyer

Period of Statutory Redemption (Right of Redemption)	Deficiency Judgment Unlikely

Sheriff's Deed Conveyed to Buyer Evict Mortgagor

Possible Deficiency Judgment

What is a Foreclosure? - Google NewsMoving target: Goal for foreclosure aid in dispute - The Associated Press

Calif. politics has short sellers facing big bills - The Associated Press

Larimer tops February's decline in foreclosure - The Coloradoan

Contractors turn to foreclosure renovations - Atlanta Journal Constitution

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◦	Lenders Instigate Foreclosures with Outrageous Fees
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◦	DC Contemplates New Foreclosure Law
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◦	Florida Foreclosure Laws
◦	Florida Plan urged to halt foreclosure scams
◦	Foreclosures Follow Convicted Felon
◦	Slow Housing Market Speeds Up Foreclosure Scams
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