The buyer is responsible for a down payment. However, there are loan programs that allow buyers to reduce or forgo the required down payment. For example, veterans who go through the Department of Veterans Affairs (VA) for their loans are not responsible for paying a down payment.
What if the buyer is behind on their mortgage?
The lender may be forgiving for a short period of time, and there are even options to work with the lender if you’re unable to pay your mortgage.
However, if the homeowner falls very behind on payments, the lender may take action.
What is foreclosure?
When a homeowner misses a mortgage payment, the lender notices and will start to take action. When it’s a chronic issue and cannot be resolved, the lender will want to seize the property.
The foreclosure process varies from state to state, but generally, there are two different avenues for a lender to take back the property from the homebuyer:
- Judicial foreclosure: For a lender to seize the property, they must file a lawsuit against the homeowner. If the judge sides with the lender, the homeowner must vacate the property and the bank will put the house up for sale. Some of the states that use judicial foreclosure include: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana (executory proceeding), Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, and Wisconsin. Other states use judicial foreclosure sometimes or if the homeowner requests it.
- Power of sale: Lenders are not required to go to court to foreclose on a home. After giving a proper warning (this varies from state to state), they can place the home in foreclosure and sell it with the help of a third-party trustee. This process moves much quicker than a judicial foreclosure. States that typically allow power of sale include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and Wyoming. Other states may use power of sale occasionally.
Lenders would rather not foreclose on a house. As such, they will send warnings to the homeowner. In Florida, homeowners have 20 days to respond to the lawsuit, according to Florida Law Help. In Georgia, lenders must send a notice at least 30 days before the foreclosure sale. If you took out your mortgage after January 1, 2016 in Alabama, you’ll probably receive notice about your right to redeem the property 30 days prior to the foreclosure, according to the legal website Nolo.com.
There are also other options for those behind on their mortgage payments, including refinancing, government programs, working with a housing counselor, forbearance, and short sales.
What is a short sale?
A short sale is an alternative to foreclosure. If a homeowner is in a situation where they cannot pay the mortgage and the property is worth less than the balance of the loan, they can look to sell the house in a short sale. This sale must be done with permission from the lender.
In the case of a short sale, the lender is essentially a partner in the transaction, which means they have the right to turn down an offer they believe is too low and can counter. This process might turn off some buyers who are not willing to purchase the property “as is” at the negotiated price.
Short sales move faster than a foreclosure, meaning homeowners have less time to find alternative housing. However, it is less detrimental to their credit score to have a short sale than a foreclosure.
What is a deficiency judgment?
However, just because the foreclosure or short sale has gone through does not mean you’re off the hook. Now, homeowners need to deal with deficiency judgments, meaning the remaining balance owed to the lender. For example, if your mortgage was $500,000, you’ve paid $100,000, and the home sells for $300,000, you still owe $100,000 to the lender.
A deficiency judgment will go on a homeowner’s credit. Different states have different lengths of time required for the deficiency judgments to be paid, and the judge can decrease the amount owed if it’s more than the house is worth.
Working with Meridian Trust
Neither a short sale nor a foreclosure is ideal for a homeowner, and it can be very stressful. Luckily, Meridian Trust has experience working with houses that have gone into foreclosure. For more than 15 years, Meridian Trust has purchased thousands of homes, townhomes, condos, apartments, and multi-family units in all sorts of scenarios and conditions. Vacated, rented, trashed, brand new, we’ve seen it all.
Skip the stress of a foreclosure or short sale and call Meridian Trust for a free, no-obligation property value analysis. If we’re able to make you a cash offer, you can decide if you’d like to move forward — no pressure. There are no hidden fees, and we even take care of the closing costs for you.
Call us at (954) 807-9087 for a free, no-obligation cash offer.
Note: This guide is for informational purposes only. Meridian Trust does not make any guarantees about the sufficiency of the content in or linked to from this blog post or that it is compliant with current law. The content within this blog post is not a substitute for legal advice or legal services. You should not rely on this information for any purpose without consulting a licensed lawyer in your area.