Prior to Postponing the Auction
A Trustee Sale or Sheriff’s Auction is a step in the foreclosure process that occurs after the borrower has received the Notice of Default (NOD) advising them they have defaulted on their mortgage (stopped making payments) and the homeowner does not or is unable to reinstate the mortgage in the time period required. In most states, once the Notice of Default is filed, a borrower has about 90 days to reinstate the loan by making up the back payments and paying late charges, which include the trustee's fees.
At the Trustee Sale / Sheriff’s Auction, the property is auctioned off to the highest bidder.
If the property is not sold to anyone at the Trustee Sale / Sheriff’s Auction, ownership of the property is transferred to the lender.
To postpone an auction, the borrower must first be in default. Going into default means the borrower is not making mortgage payments. Borrowers who stop making mortgage payments will sooner or later cause the bank to foreclose. Now, how that foreclosure is handled depends on state law. More than half of the states in the United States are trust deed states, and foreclosures in trust deed states are handled by the trustee.
5 Ways to Postpone a Trustee's Auction
2. Redeem the Mortgage
There is a difference between reinstating a mortgage and redeeming a mortgage but you will often hear the words used interchangeably, which is wrong. To redeem a mortgage is to pay off the mortgage; to reinstate, a mortgage is brought current. During the final days of a non-judicial foreclosure process, a lender is not required to accept a reinstatement but must allow a redemption.
Lenders are also not required to postpone an auction in exchange for a loan modification, but most banks will try to work out a temporary repayment schedule. This does not mean the bank will not send the home to auction, so be careful. Borrowers may want to ask the bank for a written promise not to move forward with the auction.
Some banks are sneaky. These banks will grant a temporary loan modification and, after 3 to 6 months, tell the borrower they are filing foreclosure because the borrower does not qualify for a permanent loan modification. They say thanks for the partial payments and file a Notice of Default.
3. File for Bankruptcy
A bankruptcy filing does not permanently stop an auction but it could postpone the auction for a while. When a debtor files for bankruptcy, the court issues an order known as an Automatic Stay that stops attempts from creditors to collect money, which includes postponing an auction. It's like telling a trained dog to sit and stay. But the lender can then file a motion to lift the Automatic Stay, especially if the Notice of Default was already filed.
4. File a Temporary Restraining Order
Most people associate a temporary restraining order with domestic abuse but petitioning the court for protection from abuse can also include a request to postpone an auction. Borrowers will need to hire a lawyer to file a temporary restraining order, and that lawyer might need to find a reason based on fraud or some type of wrong doing on the lender's part. Even if the lawyer is successful and wins the argument, the restraining order is not permanent.
5. Attempt to Do a Short Sale
Telling a lender that the borrower is attempting to do a short sale is generally not enough. The borrower must submit an offer to the bank from a qualified buyer. The real estate agent or lawyer handling the negotiation for the borrower then calls the bank's negotiator and requests a postponement of the auction. Often, banks will not consider a request for postponement until the auction is a few days away. It's as though the bank like to make borrowers sit on pins and needles, wondering if the auction will be postponed.
Bear in mind that Fannie Mae and Freddie Mac short sales that are in default are handled differently. Fannie Mae and Freddie Mac do not postpone trustee's auctions. There is the very real possibility that a home could be put up for auction while a seller and buyer are waiting for the short sale to be approved.
What is an SFR?
The complex details involved with short sales and foreclosures are unique calls for specialized expertise. Contact an agent such as myself that has earned the Short Sale and Foreclosure Resource (SFR) Certification through the National Association of Realtors and who is committed to helping you understand your options so you can make the best possible decisions for you and your family.
If you are in a situation where your home is “underwater” due to falling home prices, you are unable to make your current mortgage payments and you are considering pursuing options such as a short sale, deed in lieu of foreclosure, strategic default or even foreclosure, there could be drawbacks that I, as a real estate agent, cannot advise you on. For your protection, I suggest that all borrowers:
- Obtain legal advice from a competent real estate lawyer regarding deficiency judgments
- Call an accountant or CPA to discuss short sale and foreclosure tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale or foreclosure will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
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