In nonjudicial foreclosure states, banks do not have to sue homeowners in court to have a house sold at auction. The original loan documents have a “power of sale” clause that allows lenders simply to give notice to borrowers that they are in default, have a specific amount of time to pay back the arrears, or face the auction of their home due to foreclosure. There are, however, a number of different notices that banks may send out, which depend heavily on the state foreclosure laws that dictate how the foreclosure will proceed.
In some states, lenders will have to send out a notice of default first, followed by a notice of sale. the notice of default informs homeowners that they have fallen behind on payments and gives them a specific amount of time to make up the arrears and all costs. If the borrowers become current on the loan again, no further notices are sent. However, if they are unable to reinstate the mortgage, the bank sends out a notice of sale indicating when and where the auction of the property will take place.
Other states allow the notice of default and notice of sale to be combined into one notice. This type of notice typically indicates when the property will be auctioned off if the back payments are not made up. Homeowners will receive only the one notice and will have to reinstate to stop foreclosure before the scheduled auction date.
Similar to the combined notice, certain state foreclosure laws require banks to send out only a notice of sale. This notice simply informs borrowers of when and where the foreclosure auction of their home will be conducted — it does not necessarily give them any more information on how to reinstate the loan or what to do about the missed payments.
Finally, in a small number of states, homeowners do not need to be sent any notice at all for the bank to foreclose on the house and have it auctioned off. Instead, the lender only needs to publish the notice in local newspapers or post it in public places in the county. Homeowners who find out that their home is going to be sold by reading the newspaper may be woefully uninformed about the timeline the foreclosure is following, but the lender may be adhering to state law.
These notice requirements vary widely from state to state, and these only cover nonjudicial foreclosure proceedings where homeowners are not sued in court. Banks and their attorneys have to keep track of the foreclosure laws of fifty states, various county rules, and where in the process the millions of homes facing foreclosure are currently.
This makes following the requirements especially difficult for lenders, and gives homeowners an opportunity to contest their foreclosure. When banks fail to send out a required notice, the foreclosure process may be invalid, as the sending of notices is a legal requirement in order to move ahead with a foreclosure. This is just one more reason borrowers need to do some research on their state’s foreclosure laws in order to defend against the bank and save their homes.
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