When Do I Need To Leave My Home During Foreclosure?
Foreclosure rates are higher than last year jumping up 9% in the first quarter of 2021 compared to the last quarter of 2020. For potential homeowners who are competing to get into the market, this is great news. An increase in activity makes it easier to find foreclosure homes, and real estate in distress helps keep property levels low. Right now it is nearly impossible to buy a house below market value due to the housing shortage.
In fact, right now there are less than three months of supply of homes on the market, which is actually the lowest rate of the century. That’s bad news for millennials who already had the cards stacked against them when it comes to homeownership. With looming educational loans and another recession to battle, the idea of buying a home as-is that is sold below market value is very appealing. However, buying a house in foreclosure often can mean waiting as foreclosed homes do not immediately become available.
Many people who find foreclosure homes are actually surprised at how long of a process foreclosure really is. When buying a house in foreclosure it is helpful to understand the process of foreclosure so you know what to expect and when the current/past/defaulted owners need to actually vacate.
Missed Payments Do Not Immediately Lead to Foreclosure
A lot of people looking at real estate in distress mistakenly think the occupants are already gone, but is possible that there will be people living in the home if you are buying a house in foreclosure. The actual default does not being when the first initial payments are missed. After missing a couple of payments, the bank will send polite letters reminding you a payment is due. While it differs by the banking institution, around 90 days the bank will likely send out a “breach letter” that essentially informs the current owner that they are in default and have to get their account current or foreclosure will begin.
Judicial Versus Nonjudicial Foreclosures
At this point, if you find foreclosure homes in different states you may see the process vary. There are two types of foreclosures: non-judicial and judicial. A judicial foreclosure is executed through the courts. The defaulted mortgage holder must respond to the lawsuit within 20 to 30 days and if they do not then the court will find in favor the bank who then is allowed to host a foreclosure sale. It is at this point that a buyer can look at buying a house in foreclosure, but even at this point, the previous owners are not yet forced to vacate the premises.
Some states don’t require a court ruling to begin a foreclosure action, which is why the second type of foreclosure is called a nonjudicial foreclosure. In this case, the defaulted mortgage holder will receive one of the following:
- A combined notice of sale and default
- A notice of default and then at a later date notice of sale
- A notice of sale stating a specific date of sale
- Public notice placed on property or in a newspaper
Is This the Time to Vacate a Property?
Nope, while the foreclosure is officially started at this point, the previous homeowner is not required to move out of the property. It should be noted that they may leave at any point, and some even default and disappear before a notice is even served. However, as the potential owner of a home that is sold as-is, be aware that the previous owner can stay up until the sale. This means there is a potential that the home will be in a worn-down condition.
Following either a judicial or nonjudicial foreclosure judgment/notice, the former owner is allowed to stay in the home until the home is actually sold. Depending on the sale price, if it put up on auction, or the previous owner attempts a short sale, this process can take anywhere from two months to up to a year. In fact, some judicial foreclosures can take a long period of time. This is one reason why you may not find foreclosure homes right away even though you see public notices published indicating a homeowner is in foreclosure.
Buying a House in Foreclosure
Finally, the lender will put the home up for sale which is why you have a chance to buy a house below market value. However, because the previous owner may still be living in it there is a good chance you won’t get to view it. During a short sale you may be able to tour the home or ask for a home inspection, but if an auction is hosted by the bank then you will have to buy it sold as-is. This is the risk that one takes when they find foreclosure homes in an effort to buy a house below market value.
The former owner can also extend the time they can stay in a home or put a temporary hold on the sale if:
- They apply for loss mitigation
- Enter a state program for foreclosure avoidance mediation
- File for bankruptcy
Completed Foreclosure Sale
After the sale is completely closed, then the former owner is forced to vacate the property. If the old owner does not leave, then you can evict them from the property. Sometimes the lender will take care of the eviction prior to the sale in order to make the home more attractive to potential buyers. Eviction processes vary by state, but in most cases, the owner of the home will have to leave in three or so days following receiving the eviction notice.
Is It Worth It to Buy a Home in Foreclosure if the Tenants Refuse to Leave?
While mortgage holders who default are able to stay in the home up until the sale in most states, most do not. This is a worst-case scenario, and while it is a risk of buying a house in foreclosure, it is not always a problem. Keep in mind, dealing with the eviction process can be worth it if you are able to buy a house below market value that would ordinarily be out of your budget.
