1

2. The Business of Foreclosure

In this module:

• Mortgage theory

• Types of foreclosure

• Professionals involved in foreclosure

2

Lien, Title, and Intermediate Theory

• Lien theory: Title is in borrower’s name title; mortgage deed lien filed by the lender.

• Title theory: Title is in the lender’s name; borrower is granted a trust deed.

• Intermediate theory: Borrower holds title unless loan is in default; ownership goes to the lender upon default.

3

Lien, Title, and Intermediate Theory

Why is it important to know which theory is used in your state?

The theory determines:

1. Who owns the property prior to foreclosure

2. The timeline of foreclosure

4

Lien, Title, and Intermediate Theory

Who benefits?

Lien (mortgage) benefits the borrower —it ‘buys’ more time

Trust (deed) benefits the lender—it’s more expedient

5

Types of Foreclosure

Judicial

• Ordered by court

• Timeline is longer

• Many states allow “summary judgments”

6

Types of Foreclosure

Non-judicial

• Pre-authorization to sell is granted in the loan document.

• Trustee is granted the right to sell upon a foreclosure.

• Timeline is shorter.

7

Types of Foreclosure

Judicial usually occurs in lien (or mortgage) states.

Non-judicial generally occurs in title (or deed) states.

8

1) Pre-lien30 days

2) Lien30 days

3) Notice of default (NOD) 90 days

4) Notice of sale 21-25 days

5) Trustee sale

If unsold

6) REO

A. Pre-Foreclosure

B. Auction

C. REO

Foreclosure Process

Notification 30 days following default

NOD initiates the foreclosure process and redemption period

Auction—sheriff’s sale

REO—bank-owned property

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The Foreclosure Process

Redemption period

• Provides the borrower the opportunity to recover the property after the foreclosure process begins

• Varies from state to state

• Ask the lender, “Can the borrower redeem the property by paying past due amount including penalties and interest, or must it be paid in full?”

10

The Foreclosure Process

The lender’s situation and incentives?

• Lender’s role changes from servicing the borrower to selling the property.

• Lender is motivated to recover the current and minimize the future loss.

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Professionals Involved in Foreclosures

Lender-Employee Asset Manager • Employed by lender• Project manager overseeing the REO

from list-to-sell

Outsource Asset Management Company (OAMC)

• Third party performing same duties as an asset manager

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Professionals Involved in Foreclosures

Finder• Third-party company• Similar to a utility player in baseball

—takes on any responsibility required by the OAMC or asset manager

• Typically has limited decision making authority

13

Professionals Involved in Foreclosures

REO Representative• Third party from lender• Listing broker

Vendor Management• Property preservation including re-

key, trash-out, etc.

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Professionals Involved in Foreclosures

Eviction Specialist• Makes sure REO properties are

vacated

Loss Mitigation Specialist• Attempts to assist in avoiding

foreclosure through workout programs

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Professionals Involved in Foreclosures

Auditors• Local government resource for

properties

Attorneys• Hired by lender• Performs legal work• Works with lender’s loss mitigation

specialist