Most lending institutions today prefer the process of a Non-Judicial Foreclosure since it doesn't have any complications or legal proceedings attached to it. Simply put, this kind of foreclosure is between both the lender and the borrower.

What is a non-judicial foreclosure?

Non-Judicial Foreclosure is a type of foreclosure without any court intervention. As defined above, this kind of foreclosure is simply between the lender and the borrower, or other persons with connections to the transaction like a mortgage broker or a financial adviser.

When the mortgage has reached its maturity date and the borrower has yet to fulfill the payment of the debt, then the lender will send a Notice of Default informing the borrower that the deadline for the said mortgage has elapsed.

If the borrower did not comply with the Notice of Default then the lender may now issue a Notice of Sale to the borrower, auction houses, and public notices that the property is now foreclosed and will be sold to the highest bidder, usually in cash equivalent.

Notice of Default

Once the borrower has failed to pay the debt within the said deadline then the lender will issue a Notice of Default to the debtor. The notice states that the recipient of the letter has not paid their dues in the stated deadline. The letter will also contain a small extension of the deadline for the debtor to pay the obligation.

If the payment is not made within the deadline stated in the notice, then the lender may issue a Notice of Sale to the borrower, the public, or to those connected to the transaction that the property is now foreclosed and is open to a public auction.

A Trustee Sale Guarantee will be requested by the trustee from a title company; the TSG will give assurance to the various liens and encumbrance against the property. The TSG will also contain the parties to receive the Notice of Default.

The 3-months Reinstatement Period

Before the Notice of Sale is issued to the borrower and to the concerned public, a reinstatement period of 3 months is stated by law for the borrower to reinstate the loan. During this period, the borrower may communicate directly with the lender to try to either extend the loan or to pay it in full to avoid a foreclosure.

Notice of Trustees Sale

During this 21-day publication period, a Notice of Trustees Sale will be issued indicating the place and time of the actual auction of the foreclosed property. The notice is usually published in the local newspapers or in public notice areas. The Trustees Sale will also contain information about the foreclosed property as anything in it that the trustees wishes to auction off to pay the debt.

After the 21-day period, the property is now eligible to be sold in public. The property will be auctioned off to the highest bidder. But 5 days prior to the date of sale, the borrower may reinstate the loan or postpone the sale if he or she deems it necessary.

Time Frame

It is important to know the time frame for the different processed of a non-judicial foreclosure; this will give you an important edge either in reinstating the loan or trying to catch up with the payment deadline.

The Notice of Default (NOD) will be issued once the maturity date of the loan is reached and the borrower did not pay any of the obligations owed. When the NOD is mailed off to the concerned parties, a 3-month reinstatement period is given as an opportunity for the borrower to renew the mortgage to avoid the foreclosure.

After the reinstatement period, a 21-day publication period of the Notice of Sale is sent of to the newspapers to inform the public of the auction time, date and place. The Trustees Sale will contain all the information of the said auction; this includes the time, place, information on the property and all other assets within it that is auctioned off.

After 5 days prior to the published sale date, the borrower will have another opportunity to reinstate the loan or pay off the remaining debt to avoid the foreclosure of the said property.

If you are interested in buying a pre-foreclosed or a foreclosed home there are several issues that you should consider. These are not necessarily related to the house you are purchasing but these could put you on rocky financial grounds.

Buying a house is not like going to the supermarket where you can expect the cashier to give you the title of the property right away once you present your payment. It requires complex deals between you, the bank and the homeowner. For example, if you want to bid on an auctioned house, you should present a letter from a lender or a bank that proves that you have enough money to buy the property.

However, not all banks will be willing to give you the recommendation because properties in the auction are sold "as is" and are not open for inspection. This means that the bank won't be able to appraise the house in order to see if it is worth the price you pay - you could overpay and have zero recourse.

Secondly, laws differ from one state to another. Therefore, concrete knowledge of these laws or having a good attorney who specializes in these laws will be to your advantage. Also, hiring a lawyer will help you identify various laws that could either give you a good deal or put you under financial strain.

For example, there are several states that give the owner the right for a redemption period. This period allows the original homeowner to buy back the property even if it is already sold to a home buyer given that the period has not lapsed yet and the homeowner has enough money to secure the sale. This is advantageous for homeowners who have lost their homes to foreclosure but a big negative for home buyers who have already put their investments in a foreclosed property.

Hiring an attorney could insure the security of a willing home buyer from such laws. Additionally, a lawyer can find ways to waive the right for redemption.

Another financial consideration when buying a foreclosed home is the "lien", which is basically a legal claim against the property. It is understandable that someone who can't keep up with his mortgage payments may owe somewhere else or have unpaid income or property taxes.  And in such cases, it is fairly possible that the money is borrowed against the house. These liens will remain intact unless the balance is paid in full. In many cases, home buyers of foreclosed properties will have to pay for the liens. It is highly advisable that someone interested in buying a foreclosed property should conduct a title search. Foreclosed homes rarely come out clean so make it a point to know all the details about the house you are buying.

Many properties, whether residential or business, are slowly disappearing due to foreclosure. The best way to avoid this from happening to you is to understand documents pertaining to your  mortgage loan and foreclosure including the mortgage, promissory note and a deed of trust.

What are Mortgages?

'The term mortgage, or mortgage loan as it is normally called, is associated with foreclosure. In a sense, when a loan's maturity date is reached without payment of both the principal amount and interest, then foreclosure is imminent for that property or business.

A mortgage is using a property, whether real estate or commercial, to be used as a security for payment of a debt, or a mortgage loan. Normally, a mortgage loan is used to refinance a business or to be used as a basis for home improvement. When done, a contract, or a mortgage, will then be made by the lender containing the information of the said property, the amount loaned and the interest rate incurred by the principal amount, and the maturity date.

When the borrower fails to pay the exact amount as stated in the mortgage, then they may issue a promissory note requesting the lender to extend the maturity date.

Promissory Note and what's in it?

A promissory note is simply defined as a note or a contract which specifies detailed terms regarding the payment of a debt from the borrower to the lender. The note contains the amount owed by the borrower to the lender, the interest rate and the deadline for the payment or maturity date. A promissory note is also very useful for the purpose of tax and record keeping of the said transaction since it can be honored as a legal document.

A promissory note is used when the borrower fails to pay the agreed amount on time and requests an extension. If the lender agrees, then the promissory note will become a contract regarding the promised payment, and can be used in any legal proceeding during the time of foreclosure of judicial sale.

There are two kinds of promissory notes being used to date; one is the normal promissory note which contains the above information, and the demand promissory note which contains the same information as above yet no deadline of payment is stated. One catch of using a demand promissory note is that the lender can demand the payment from borrower at any time they see fit. Normally, the lender will inform the borrower in advance concerning the date of payment.

The concept of a Deed of Trust and a lien

A deed of trust is simply an attached document which serves as a security interest by the borrower to the lender to be able to pay for a certain debt or a loan. Usually, a deed of trust is considered a lien rather than a stipulation stating a transfer of title of the property from the borrower to the lender.

Also, liens can also be considered as a non-possessory security interests which grants the lender from holding or securing the said property without resulting to a sale until the debt is paid.

A deed of trust is often used since the cost is less compared to an actual mortgage contract. The deed is a non-judicial document and only contains the agreement between the borrower and the lender. Also, using a deed of trust is much more preferable by the lender since the process of foreclosure can be sped up from 1 year to a mere 3 months.

If you can't pay the mortgage payment in full by the maturity date then you can initiate a promissory note between you and the lender to extend the time of payment. You may also use a deed of trust or a lien when you don't want your property to be sold during foreclosure, which will give you ample time to get your property back as stipulated in the deed or lien.

Keep All Written Documentation

In applying for a mortgage loan, it is always important to keep a close eye on your documents pertaining to the said transaction; and knowing the importance of each can give you the elbow room that you need to maneuver your property away from foreclosure.