Can someone tell me how a foreclosure process works?

Does foreclosure notices ever just sorta come out of left field? I would imagine a homeowner knows that they aren’t making payments and thus can guess that a forclosure is imminent, but does the bank send several notices before they actually foreclose? Does a homeowner know in advance when a foreclosure is going to happen?

Can anyone tell me how this process works?

I came home today to find a FedEx envelope on the front doorstep, addressed to the owners of the house (we rent). It was from Bank of America, and I can plainly see the word “foreclose” on the backside of the paper through the plastic window. Now I’m freaking out that we’ll be told we have like a week to move and will be stuck living in a motel until we can find a place to stay. I really want to know if this envelope contains a foreclosure notice.

This doesn’t answer your question about the process, but from what I’ve seen, foreclosure is a long drawn-out process, and you don’t need to panic about being forced out on short notice. My ex-neighbors stopped paying their house note for over a year, and when they finally moved out, it was because they decided the time was right.

Here’s a link to BoA’s explanation of the process.

This part in particular is comforting:

“In some circumstances, you may be eligible for additional time in your home or even receive funds to help you with your move. If you have tenants living in your property, they may qualify for assistance as well.”

Foreclosure is technically the seizure of collateral. It doesn’t mean the lender takes physical possession of the collateral–it means the lender acquires title to it. It takes a loooooong time to execute, and even if the property is indeed foreclosed on, that doesn’t mean the bank will then sell it, if for no other reason that the market is glutted with foreclosed-on properties. The bank may decide that the best course of action is to keep you, the paying renter, right where you are to help defray its costs.

Also–this is mere speculation on my part, but after the recent torrent of bad will engendered by BofA’s butchering of foreclosure processing, they might just be handling everyone with kid gloves right now.

First, I wouldn’t panic just yet. I received more than one “foreclosure” letter about my house from banks that were not mine. They were delivered by DHL or FedEx to look official and basically said “If you can’t make your payments, you might be foreclosed on. We can refinance the mortgage and lower your payments.” Pure junk mail with no connection to me. I suspect I got on the list because I inquired about refinancing to lower my interest rates… I was certainly never behind on payments.

Anyway, if there is a risk of foreclosure, it will take a very long time from the owner’s perspective… but the renter might not have as much notice. If the bank is just starting, you’ll certainly have months, but most of that correspondence will be with the owner. You might want to contact your landlord to open a dialog about it.

I would also contact whatever local agencies hand landlord-tenant laws and ask there, since the foreclosure process and tenant rights vary between states, counties and cities.

I’ve never read of this anywhere. On the contrary, I’ve generally understood that banks DON’T want to get involved in being landlords and don’t want to deal with having tenants. With the market so glutted, has this changed?

I’ve also read horror stories that the housing market is so glutted with foreclosed houses, and the banks not being able to sell them, that banks are often walking away from the foreclosed houses, leaving them abandoned. WTF? Why even bother foreclosing if it’s going to come to that? Why fight tooth and nail against modifying the loan or reducing the principal? At least they could be getting some return on the investment if they did that. But no, the banks are more interested in just being punitive and jerkish, apparently.

Kinda like loan sharks, if you can’t pay, they’ll send Vinny to come break all your bones and throw your remains in the public square for everybody else to see and contemplate.

It really depends on your state of residence. Some states require the banks to go through the court system. Some do not.

Depending on the lender, some have engaged in shady practices that make them get a million documents in order. Some have not.

In any event, there was a law passed in 2009 that after a foreclose sale, a renter will have 90 days to move (don’t have a cite…someone will be along).

IANAL, YMMV, this is not legal advice, but call the Plaintiff’s attorney listed on the complaint and see what is going on. If it is just a nonsense letter, then ask your landlord to be straight with you. Get some concessions…

In Cook County, IL you can search on the county court website by the owner’s name to see what’s going on with the foreclosure. If you’re lucky, the court personnel will even interpret legalese to English for you.

In many places these days, foreclosures are taking years to complete because the courts are so backlogged. And even after the foreclosure is completed in the courts, in Cook County these days it’s taking up to a year for the sherrif’s office to get around to evicting people.

Depends on the market. The situation I described happens a LOT in Las Vegas and Phoenix, where there is a huge glut of inventory.

When you think about it, it makes a lot of sense as the properties stay in better condition when occupied. It also allows the borrower to execute a “deed in lieu of foreclosure” and everything can pretty much stay as it is until the property finally sells.

Yes, the banks don’t want to get involved in being landlords, but if you accepted a herd of sheep as collateral for a loan and you can’t sell the sheep, you’re pretty much going to have to be a sheep farmer for a while.

Thanks for the replies, everyone.

Some more info in case anyone else stumbles upon this thread with anything to add.

  1. This is Douglas County, Oregon.

  2. We’ve lived here just shy of four years. A couple of years ago (in fact, I remember this clearly: I was watching CNN and it was day 37 of the gulf oil spill coverage when my phone rang) my landlord called and told me that they were likely selling the house. He was very upfront with me: they were not able to pay the back property taxes on the place and were putting it on the market; they no longer wanted to deal with two mortgages and the accompanying taxes and insurance. I guess they figured something out because he told me a couple weeks later that they weren’t selling after all.

  3. I strongly suspect that TPTB (mortgage lender, insurance agency, county tax office) does not know that this place is a rental. Right after we moved in the owners refinanced, and insisted on being here during the appraisal inspection. I heard them tell the appraiser that we were “family”, just staying for the summer. Also, the fact that the BofA envelope was delivered here instead of their address is suspicious – why not send important documents to their address? I’m paranoid by nature, but even when I try to turn that off I can’t noodle that one out. My only explanation is BofA thinks the owners also occupy the house. If we aren’t legal renters (and, frankly, we probably aren’t – we didn’t sign a contract, just shook hands and haven’t had a problem since then, although I’m aware that may come back to bite us in the ass), I don’t know what protection we have.

I took the envelope to the landlord this afternoon. To kill time while he opened it, I asked him about borrowing his pickup to haul some brush off the property. He read through the papers, then happily resumed the conversation about yard care. Didn’t seem at all freaked out, and this is a guy that blows EVERYTHING out of proportion and freaks out at the smallest provocation, real or imagined. I took that as a good sign. He called me an hour or so later and invited my two boys over to swim in their pool (they live just a short distance away). He didn’t mention the envelope at all.

So now I’m stumped. The whole probaly-gonna-sell fiasco from two years ago is running through my head. Seems to be agreement that the foreclosure process is a lengthy one, but there may have been much going on before today that I was unaware of, and this is is the final act of months of negotiation between BofA and the landlord.

We were planning on moving anyway, but goddammit I want it to be on our terms, not someone else’s.

If you don’t have an actual lease, you should get one. If the bank takes title to the house, they still have to honor the lease. The owner probably didn’t want them to know it was rented because they financed it as a second home or owner occupied, which gets much better rates. The bank would likely be interested in keeping you there, and signing you up with a property management company. If they are too bogged down to be ready to sell it soon, they would much rather have it occupied than vacant.

Not true. A foreclosure extinguishes all junior interests in the property. So in the typical lease scenario, the bank has the highest interest, the homeowner second, and the renter/lessor last.

If the bank forecloses on the homeowner, it extinguishes the interest that the lessor has in the property in much the same way that a foreclosure extinguishes second mortgages.