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MORTGAGES
The laws of the state in which the real property is located and the terms of the mortgage documents control the rights of the parties. The bank or lender is called the MORTGAGEE and the borrower is called the MORTGAGOR. The borrower signs a promissory note. That note or loan specifies the amount due at a particular rate of interest over a specified period of time.
The MORTGAGE (or in some states called a DEED OF TRUST) is the lender’s lien on the property if the buyer defaults on the loan. It’s like an insurance policy. The default will trigger a foreclosure proceeding whereby the house is sold to enable the lender to recoup all or part of the loan amount that remains unpaid. Note that all of this is separate and distinct from who is listed on the deed as owners. The important person(s) in foreclosures is who has signed the promissory note/loan.
There are two general types of foreclosures the JUDICIAL and the NON-JUDICIAL. Each state has either or both as a remedy for the lender and you should check your state’s laws and, again, the mortgage documents.
a. NON JUDICIAL FORECLOSURE. Here the MORTGAGEE, the lender, sells the property without court supervision. This is usually done by means of an auction of the property. From the proceeds of sale at auction, the lender’s mortgage lien is satisfied, then the liens of other lenders or creditors who have obtained judgments against the property. If there are any proceeds left, the borrower is paid as well. Most of the time, there are no proceeds left for the buyer. Usually the sale yields less than the amount of the liens. Certain states will then allow an action for a deficiency judgment to be obtained against the borrower. The mortgage documents again control and usually the judgment can include auction and legal fees and other expenses associated with the foreclosure. The NON JUDICIAL foreclosure eliminates the court costs and rigors for the lender of bringing a lawsuit and also benefits the borrower in terms of costs and time. Depending on state law, deficiency judgments may or may not be allowed. (see below)
Another variation on non judicial foreclosure is the SHORT SALE. If the lender agrees to this, the amount of the mortgage is reduced. The borrower, not the lender, sells the property and turns the proceeds over to the lender IN FULL SATISFACTION OF THE LOAN AMOUNT DUE.
The main benefits are
1. No court intervention/foreclosure action;
2. No deficiency judgment;
3. No negative notation on the borrower’s credit report;
4. Faster and less expensive than foreclosures.
b. JUDICIAL FORECLOSURE. Here the sale of the property takes place after the commencement of a lawsuit and a court order that that property be sold and that all lien holders be paid. If the state allows it, a deficiency judgment can be obtained against the borrower. After the proceeds of the sale, plus expenses and attorney fees, there is a net deficiency in the amount of the loan balance. Therefore, the lender can sue the borrower personally to obtain and enforce a DEFICIENCY JUDGMENT against the borrower PERSONALLY. Once a judgment is obtained, it automatically becomes a lien on any other real property in the state owned by the borrower. It can also be enforced against all of his personal assets, for example, bank accounts. The lender may also be able to garnish wages. It can serve the borrower with written questions or a notice to give an oral deposition specifically to discover those assets. If he does not comply, they can and will obtain an order of contempt against him. Finally, even if the borrower has no assets at the time the deficiency judgment is obtained, the judgment is recorded in the county clerk’s office and is effective for usually ten years or the time provided by the laws of each state. If the borrower acquires assets in the future, they can be used to satisfy the judgment.
c. RIGHT OF REDEMPTION. This is allowed in certain states. This gives the owner, within a certain time frame after the sale of the property, an opportunity to reacquire the property.
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