FORECLOSURE IN THE USA: HOW TO TAKE ADVANTAGE OF THIS OPPORTUNITY?

 FORECLOSURE IN THE USA: HOW TO TAKE ADVANTAGE OF THIS OPPORTUNITY?

No one imagines losing their home one day, yet foreclosure in the US is one of the reasons why millions of Americans lose their real estate.

Researching the definition of foreclosure is a good first step, but it's important to understand the implications of this unusual process.

That is to say, prepare yourself for all possible eventualities.

With this concise guide, we will teach you the inner workings of this mechanism which has made the fortune of some, but also obviously the bankruptcy of many others...

foreclosure in the USA

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What is Foreclosure in the United States?

Foreclosure is a process that begins when a borrower can no longer make their mortgage payments.

When a home is foreclosed, the lender typically repossesses the home and attempts to sell it.

This happens because mortgages are most often secured against the value of the property, meaning the house is used as collateral.

Since the house is collateral, it can legally be seized by the lender if loan repayments are no longer made.

Following the economic crisis caused by the COVID-19 pandemic, a moratorium on foreclosures was put in place by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

For a time, no foreclosures can take place. Foreclosures in the US are on hold, which is historically a very strong political decision. Such protection from the US government is something very unprecedented.

This was done to provide flexibility to homeowners who might be struggling and to avoid a widespread foreclosure crisis.

During this period, homeowners can also request a forbearance, which is when the lender allows them to suspend mortgage payments for a certain period of time.

The moratorium ended on July 31, 2021 ( Washington Post article )

How does this property seizure mechanism work?

The foreclosure process may differ slightly from state to state, but every foreclosure has the same general steps.

As a preamble, a lender can proceed with foreclosure if the default has occurred for at least 120 days (with some exceptions).

A lender will typically begin by attempting to contact the borrower about the missed payments in an effort to find a solution.

Foreclosure and Notice of Default Attorney

The first step begins with attorneys filing a complaint or notice of default (varies by state).

Defaulting on a loan means that a borrower has not repaid their loan according to the terms originally set.

Without going into detail at this stage, there is still a "way out" for the borrower. This is called "loss mitigation," which involves the borrower and the bank working together to negotiate a plan to avoid losing the property.

Judicial Foreclosure vs. Non-Judicial Foreclosure: Judicial foreclosure can occur in all states and is sometimes required in some.

In this type of foreclosure, the lender files a lawsuit, and the borrower then has a deadline to respond and pay. The judicial foreclosure process tends to take much longer than non-judicial foreclosures.

Non-judicial foreclosure typically occurs when the contract includes a clause granting the lender the power of sale. As the name suggests, the clause allows the bank to put the house up for auction after a warning and a waiting period.

But in this system, at no time is justice involved.

This is therefore a very important distinction. As you can see, in the first case the procedure is much slower, and in a way protects the borrower.

The outcome of a foreclosure in the USA

This is the painful step for the borrower. That is, eviction. After a house is foreclosed on, the residents of the house will receive a notice to vacate the property.

The notification method varies depending on your state.

Usually it is a letter or a warning given in person with a delay of 3 to 30 days.

If residents do not leave, they may be prosecuted.

In the United States, where property rights are sacred, legal action following refusal to vacate premises can have very serious consequences.

Finally, regarding the outcome, foreclosure goes far beyond an eviction; it leaves a mark. It is a very negative event on the credit score (banking history). This event will remain visible for seven years after the date of the first default.

The impact on the borrower's future is enormous. They will have significant difficulty borrowing and sometimes even renting.

With the recession: Are we heading towards a situation similar to 2008?

Floreclosures in the United States generally follow economic cycles and real estate market trends.

So, you may see an abundance of foreclosed properties at certain times. Of course, there are always properties in foreclosure, but the stock of these properties varies depending on the cycle you're in.

As we saw above, the moratorium was a historic decision in American politics. Obviously, this choice had far-reaching consequences.

The decisions put on an "artificial" hold the assets that were to be seized.

However, a few quarters later we gradually began to notice a sharp increase in seizures.

Nevertheless, some elements of comparison to put it into context:

Foreclosures in the second quarter of 2023 are below pre-2008 recession levels in 78% of major markets, with a notable increase over the past six months.

A total of 97,608 properties filed for foreclosure during the second quarter of 2023, well below the pre-Great Recession quarterly average of 278,912.

However, the rise in foreclosures could continue. Properties entering foreclosure increased by 15% compared to the first half of 2021 and by 36% compared to the first half of 2020.

Although foreclosures are on the rise, we are far from the situation of 2008. There is therefore no reason to imagine a crash in the US real estate market.

On the other hand, it is certain that wise investors are strengthening their liquidity to be able to take advantage of what is happening.