NOT LEGAL ADVICE!
This is not legal advice. If you intend to fight a foreclosure, please consult a reputable attorney!
There are many stages of the foreclosure process. The biggest thing to do is TAKE ACTION. Do not sit back and think this will go away. Here are my suggestions for how to handle each step:
As an OWNER:
Pre-foreclosure:
Work with your lender!! Answer their calls, respond to their letters. Try to get your payments adjusted, ask for a loan modification. The worst thing I see people do is ignore the issue and hope it goes away. Working with the bank may not work, but ignoring them definitely will not work!
Receiving foreclosure notice:
If you've received a foreclosure notice in error (you're not behind on your mortgage) then hire a reputable attorney. However, if the bank has been asking you to get your payments caught up for a while, and you have now received a notice that they have filed for foreclosure, it is time to call a real estate agent. These days (October 2021) with the market as high as it is, it is very likely you can sell your house for what you owe or more and be able to keep a foreclosure off of your credit. Act immediately. Don't put this off.
Receiving contact from the commissioner:
Once you receive a letter from the commissioner, this means there is already a foreclosure judgment in place. The property will go to auction. The best thing you can do for yourself at this point is be kind and accommodating. Clean up the house. Allow the open houses. There are two reasons for this. First, the lender can ask for a deficiency judgment. Let's say you owe $100,000, but because you wouldn't allow open houses all the bidders were worried about removing the occupant or were concerned about the condition of the house, so the highest bid is only $80,000. The judge can award the bank a judgment against you for the remaining $20,000. You won't have a house and you'll still owe money! The flip side is, if someone gets to see the house, sees that you are easy to work with, likes the condition of the property, and there are competing bids at auction, you get the overage! If you owe $100,000 to the lender, and the winning bidder bids $150,000, you still no longer have a house, but at least in this scenario you get $50,000 which will be very helpful in securing a rental. The second reason to be kind and accommodating is that you need a place to live and most of the people bidding at auction are investors. They may consider keeping you on as a tenant if you show you are easy to work with.
As a TENANT:
Receiving foreclosure notice:
As a tenant, your first indication that there is an issue is that you may receive a notice that a foreclosure has been filed against the property. This could be something mailed to the house or an attempt by a process server to serve legal papers. Because they are attempting to reach the owner of the property, not you, you may not be aware of this step. If you are aware a foreclosure is starting, at this point there are only a few things you can do. If you want to stay and if you have decent credit, check with a lender and then with the owner to see if you can buy the property. The owner can still sell at this point. However, the owner may be in denial that this is happening, they may insist the property is not in foreclosure. Be wary. If the owner isn't paying the mortgage, the chances of you receiving any security or pet deposits back is very slim. At this point, I suggest you consult an attorney about paying rent into a trust account instead of to the owner.
Receiving contact from the commissioner:
This will likely be your first indication that there is an issue. After a judgment, the commissioner becomes the quasi-"owner" of the property while the court sends it through the auction process. They have the right to remove you from the property, or they can allow you to stay and will start collecting the rent. The rent goes into a trust account that the judge later determines how to disburse. This is a good time to make sure the commissioner is aware of how much your security deposit is. You'll still likely not get that back, but if the commissioner is aware, he/she can account for it when collecting rent and presenting numbers to the judge.
If you want to buy the house:
Unfortunately it is too late at this point to purchase the house from the prior owner, and the bank doesn't own it yet, so you cannot purchase it from the bank. You will need to participate in the auction process if you want to buy it. Please read the FAQ of the judicial auction process. As a tenant, you are in a much better position to get a loan for the purchase, but it is still very risky with no option to recoup your deposit if you back out. Unlike anyone else bidding at auction, you are in a unique situation because as the occupant of the house, you will be able to allow the appraiser access, and you will be able to coordinate repairs if they are required by the bank. This is still very risky because if you cannot make the loan work for any reason, you could lose your 10% and you would also lose any money you spent fixing the house for appraisal. (You also must have 10% at the time of auction, regardless of the type of loan you use.) If you want to attempt this, contact a good lender well in advance of the auction and consider hiring a good Realtor to help you thorough the process as well.
If you want to stay on as a tenant:
There is a good chance that whoever buys the house at auction will be an investor looking to flip or rent. If you are kind, clean, tidy, welcoming, etc. during the open houses, and if you are paying market rent, there is a good chance the investor will consider keeping you on as his/her tenant after the process is done. Make sure you are paying rent on time to the commissioner so he/she can confirm to prospective bidders that you are a financially responsible tenant. Make sure the house looks good during the walk through. You may think that if you are unkind and block open houses it will help you stay in the house. It might buy you a few more months, but you will be removed by the sheriff sooner or later. The better approach for a potential long term rental situation is to be super accommodating and hope an investor will buy it and continue your tenancy.
If the bank buys it back at auction:
Start looking for a new rental, but banks are notoriously slow. If the bank wins at auction, you've still got a few months before you will be asked to leave. It takes approximately 2 to 3 months to get through the rest of the foreclosure process right now (fall 2021) and then it will sit on someone's desk at the bank while they decide what to do. Eventually a real estate agent assigned by the bank will show up and ask you to leave. They will have a "writ of ejectment" from the court which allows them to get the sheriff to remove you if you don't leave voluntarily. Bringing in the sheriff is a lot of expense and headache for the bank owner, so this is a good time to negotiate "cash for keys". Remember to still be kind. Everyone involved is just doing their jobs and no one wants you to be homeless. This would also be a good time to try to buy the house. If you can make an offer before the bank's real estate agent puts the house on the market, you'll have less competition.
If an individual wins the auction:
Ask the commissioner to pass your contact info along to the bidder and to let them know you would like to stay on and pay rent. Start looking for a new rental in case that doesn't work out, but hopefully the winning bidder will reach out to you and you can coordinate to stay on. This individual will also receive the same "writ of ejectment" from the court as the bank would have, and will be authorized to have you removed, so once again, work with the winning bidder as much as you can for the time you need to move.
Whether you are an owner or tenant, the things that will help you the most during this are to be kind and take action.
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