What Do I Have To Do To Foreclose On A Deadbeat Borrower?
You are carrying the note on the sale of a property, and the borrower has missed several payments, has failed to provide proof of insurance, or has not paid the property taxes. If your efforts to get them to comply have been unsuccessful, it may be time to foreclose on the property.
Foreclosures are complicated, and the legal requirements must be strictly met. Unfortunately, the process is not quick, easy, or inexpensive.
This article discusses the foreclosure process for the person carrying the note.
10 LEGAL STEPS TO FORECLOSURE
So, what steps need to be taken? Here is a simplified overview. For a more comprehensive explanation, please contact an attorney.
1. Contact an Attorney
This is no time for DIY. A misstep at any point in the foreclosure process can invalidate the foreclosure and possibly result in a wrongful foreclosure lawsuit.
2. Send Notice of Default and Intent to Accelerate the Note Balance
The borrower must be given an opportunity to “cure the default” before going any further in the foreclosure procedure and accelerating the entire balance due of the note. The attorney will determine how long the borrower must be given to do this (generally at least 30 days) and all the legal requirements of the notice.
3. Send Notice of Acceleration and Foreclosure Sale
If the borrower fails to cure the default within the specified time, a second notice must be sent. This notice advises the borrower that the entire balance due on the note must now be paid by a certain date or the foreclosure sale will occur. Specific notice of the trustee’s sale must also be sent at least 21 days in advance of the foreclosure sale. The notice must state a three-hour time frame on the first Tuesday of the month following the notice period between 10 a.m. and 4 p.m. within which the sale will take place.
4. Appoint Substitute Trustee (If Needed)
Often, the trustee named in the deed of trust will not be the person who will conduct the foreclosure sale. In that case, the appointment of a substitute trustee must be prepared and filed with the county clerk where the property is located.
5. Post Notice of Trustee’s Sale and File with County Clerk
As a follow-up to the notice of acceleration and foreclosure sale to the borrower, the notice must be filed in a specific folder with the county clerk and also posted by the clerk at a designated spot at the county courthouse as a public notice to those interested in bidding on the property.
6. Notify IRS of Trustee’s Sale
The IRS must be notified of a proposed trustee’s sale at least 25 days in advance to cut off any junior (later in time to your lien) tax liens on the property, or the lien will not be removed by the foreclosure.
7. Check Title for Other Liens
The attorney should order a “title search” to make sure there are no other liens on the property that may affect your position in the foreclosure. If there are other junior liens, the foreclosure sale generally will cut them off, but it might be worthwhile to notify the lienholders of the foreclosure sale. They might bid on the property to protect their positions.
8. Conduct Trustee’s Sale
If the borrower fails to pay off the entire balance that is due, the foreclosure sale will be conducted on the first Tuesday of the month, at a designated spot at the county courthouse, within the hours specified in the notice. The trustee will announce the beginning of the sale and invite bidders. A set procedure must be followed even if no bidders are present. You, as the noteholder, can bid up to the total amount of the indebtedness to retake ownership of the property. Other bidders must pay cash immediately to be successful.
9. Prepare Trustee’s Deed to Buyer at Sale
Following the trustee’s sale, the attorney will prepare a deed from the trustee conveying the property to the successful bidder. That deed will be filed with the county clerk.
10. Evict Borrower If They Refuse to Move Out
Sometimes, even after all of these steps have been taken, the borrower refuses to move out of the property! If that happens, you must file an eviction proceeding with the justice of the peace where the property is located.
If you are carrying the note on a property that needs to be foreclosed on and need legal advice, please contact Adair M. Buckner to schedule a free initial consultation*.
*(The free consultation does not cover actual review of documents or giving legal advice on a specific situation.)
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