20 2. The Business of Foreclosure In this module: Mortgage theory Types of foreclosure Professionals involved in foreclosure

21 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.

22 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

23 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

24 Types of Foreclosure Judicial Ordered by court Timeline is longer Many states allow “summary judgments”

25 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.

26 Types of Foreclosure Judicial usually occurs in lien (or mortgage) states. Non-judicial generally occurs in title (or deed) states.

27 1) Pre-lien 30 days 2) Lien 30 days 3) Notice of default (NOD) 90 days 4) Notice of sale 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

28 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?”

29 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.

30 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

31 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

32 Professionals Involved in Foreclosures REO Representative Third party from lender Listing broker Vendor Management Property preservation including re- key, trash-out, etc.

33 Professionals Involved in Foreclosures Eviction Specialist Makes sure REO properties are vacated Loss Mitigation Specialist Attempts to assist in avoiding foreclosure through workout programs

34 Professionals Involved in Foreclosures Auditors Local government resource for properties Attorneys Hired by lender Performs legal work Works with lender’s loss mitigation specialist