What is a foreclosure and how to avoid it-
What is a foreclosure?
Is your home going to foreclosure? Are you late on your payments or concerned you will be? Lets start by defining what a foreclosure home is and the different types. This is how it works in the state of South Carolina, as different states have different laws and redemption periods. So, for this article we are strictly talking about foreclosure homes in the state of SC. South Carolina is a Judicial foreclosure state. The lender must sue the borrower to prove the lender is entitled to foreclose.
A foreclosure home is generally a home that is owned by the bank due to the owner not paying their mortgage. Other entities can also foreclose on a home such as an HOA or an unpaid tax debt. Most of these are all subject to the 1st lien holder. The majority of the time it will be the bank (lender) that owns the home after foreclosure.
What Happens when you default on payments?
Once the owner is in default, the bank will file what is called a Lis Pendens. Lis Pendens is a notice filed in the public record that the lawsuit has been filed against the property. This is usually no less than 90 days late on their mortgage. When this is filed, it will come up on the courthouse records as the banks “intention” to foreclose on the home. This is the first of the legal filings that happens and triggers a series of events.
Many times people call me because they see a foreclosure home listed on Zillow.com, when in reality it hasn’t gone through the whole process yet. The Lis Pendens is actually the “pre-foreclosure” status. At this point the homeowner has the ability to repay the past due balance and get their home out of the “foreclosure” status. The time it takes to complete the whole foreclosure process in SC is at the minimum of six months, and I have seen it take on an average of 3 years to complete.
Once the lender has proven that the homeowner is in default and they have notified the homeowner legally it will go to a hearing, and then to auction. When the house is sold at auction at the County Courthouse by the Master in Equity in the state of South Carolina it is no longer the homeowners property. There is no “redemption” period in SC. So, when it’s done, it’s done.
What happens after the foreclosure?
Homeowners may be confused about this process. Homeowners have no right to remain in the home after a foreclosure sale in SC. My job as an agent who works for the banks (called an REO Agent- Real Estate Owned) is to knock on the doors of the homes that were acquired in the foreclosure auction. I ask the occupant what their intentions are and offer relocation assistance or cash for keys.
Many times, the bank will offer the previous owner what is called “cash for keys”. In return the occupant will vacate the property in a reasonable amount of time for a certain amount of money. For example, the bank may offer the occupant $2500 to be out of the house in 30 days. They are required to leave the property clean, and in broom swept condition free of any trash or debris. The reason the banks do this is to help prevent vandalism and additional legal fees for eviction of the previous owner.
If you happen to find yourself in this situation as a homeowner don’t expect the bank to play games anymore. They will give less money the longer you stay, or no money at all, and not all banks offer any money. The bank will file a writ of assistance directing the Sheriff to eject you form the property. If this happens and you are not out when the sheriff comes to evict you your possessions will be put on the side of the curb. Legally you will be forced out.
What can you do to avoid foreclosure?
In most cases homes can be sold before foreclosure and the debt settled with the bank. This avoids a foreclosure on the borrower’s record. It helps save their credit, and could possibly put money in the hands of the homeowner. If the home is worth less than what is owed the bank, then it’s possible to consider a short sale. I have a whole article about shorts sales you can read more here. You may consider a Deed in Lieu of Foreclosure, which is basically like handing the keys back to the bank. This will still go on your record however.
There are several other options to consider, strategic default, and bankruptcy. Before considering any of these options it is best to consult a legal adviser on your situation and what could happen.
Having a foreclosure can be embarrassing and sometimes that stops people from talk to anyone about it. All kinds of tragedy’s happen, and there probably isn’t a story I haven’t heard from the hundreds of people I’ve helped get moved on with their lives. Please feel free to reach out to me if you have questions. I will tell you straight forward if you can be saved and what your best route is.