Well, that depends on what state your property was located. For starters here is some basic yet detailed information about what happens after foreclosure.
The foreclosure is concluded following the foreclosure auction. The homeowner should receive notification when the foreclosure auction is scheduled. This will be sent from a third party company servicing the foreclosure and may be referred to as the Notice of Sale. This is typically sent via ground mail as well as certified mail. The Notice of Sale may also be posted on the property (however this posting can be taken down by the homeowner or tenant immediately). The homeowner is welcome to attend the auction to see if the property sells. The most effective way to determine the outcome of an auction or whether a new auction date is scheduled is to contact the third party company servicing the foreclosure. There should be a phone number as well as a file number on the Notice of Sale that the homeowner can refer to in order to verify the outcome. It is usually not necessary to identify oneself as the previous homeowner. The caller will most likely be asked for a file number to determine the outcome of the auction of property in question. It is recommended to have that information ready when calling. There is no guarantee the property will sell at the foreclosure auction. The three possible outcomes for the auction are:
1. The property sells to a third party investor. In this case, the title will transfer to the new owner. Once the title has transferred, the previous homeowner will no longer be responsible for the property, and would be considered a tenant and subject to tenant laws.
2. The property sells to the bank as a REO (Real Estate owned by the Bank). In this case, the title will transfer to the new owner (the foreclosing lender). Once the title has transferred, the previous homeowner will no longer be responsible for the property, and would be considered a tenant and subject to tenant laws. At this point, the previous homeowner may call the lender to request a “Cash for Keys” offer.
3. The auction is postponed and rescheduled. In this case, the homeowner would continue to be on title, continue to be responsible for the property, and can continue to inhabit the property until the next auction date and the property is sold.
Vacating the property & cash for keys
It is generally advised to be prepared to vacate the property within 3-10 days after the foreclosure auction. Following the foreclosure auction, many borrowers have received Relocation Assistance or Cash for Keys Agreements following the completion of their foreclosure. Cash for Keys is not a guaranteed part of the foreclosure process. A Cash for Keys offer (synonymous with Relocation Assistance) is an agreement between the lender (or new owner of the property) and the previous owner (who is still residing in the property and legally viewed as a tenant). In order for the lender/new owner to avoid a costly eviction, a cash incentive is sometimes offered to the previous owner in the form of a contract. The new owner agrees to pay the tenant to vacate the residence on an agreed upon moving date and leave the property in a “broom swept” condition meaning clean and undamaged. Cash for Keys is typically not offered unless the property is occupied at the time of sale. If the property is occupied at the time of sale, a bank representative could contact the occupant and offer an agreement giving a date in which the occupant agrees to move in exchange for an agreed upon offer. Over the last 5 years Cash for Keys agreements have ranged drastically, varying from hundreds to thousands of dollars. After the sale, the previous homeowner can contact the new owner to inquire who the REO (Real Estate Owned by the Bank) management company or realtor handling the property is in order to request a cash for keys deal. If a borrower receives a cash for keys offer and is satisfied with the offer, he can sign the agreement and present the keys within the allotted time in exchange for the agreed upon cash amount. However, the initial offer is only a “proposal” so one can counter-propose a higher amount should they choose. There is some risk in this as the lender could pull the offer all together. If a borrower decides to counter, one can confirm that the terms will be met (the property will be left in good condition – clean, all personal property/trash removed, and landscaped maintained), and the value of this is worth more than the lender’s initial offer.
Transfer of ownership
A homeowner can be held legally responsible for the property until the title has transferred. The title is usually transferred after the sale of the property at foreclosure auction (or after the redemption period following the auction in states like Minnesota and Michigan). Whether or not the homeowner is residing in the property until the foreclosure auction, the homeowner is still on the title of the property and may be held responsible for any damages that may ensue until the property title has been transfer. The title may transfer immediately following the auction, however it has also been known to take months. When a homeowner is no longer on the title of the property (after the foreclosure sale), the new owner/bank will assume responsibility for the house and will take the necessary steps to secure and protect the property.
Proof of Transfer
Following the foreclosure, in order to alleviate oneself of homeowner’s association fees, utility bills, property taxes or insurance, sometimes proof of a title transfer is necessary. This means at the conclusion of the foreclosure, a homeowner may need to prove that they are no longer on title of the property; that the deed has been transferred out of their name. The lender is not obligated to let the homeowner know what happened at the foreclosure auction or notify the homeowner when the home is no longer in their name. Sometimes homeowner have prove/provide documentation that they are no longer on title of the property to stop certain property related bills. Unless researched and requested from the county, a homeowner will not receive notification/documentation indicating that they are no longer on title of the property.
With regard to the mortgage loans following the foreclosure, the first mortgage lender (also referred to as the primary lender) is the foreclosing lender and will coordinate the sale of the property at the foreclosure auction. If there is money from the sale of the property, after the first mortgage is paid then the second mortgage will be paid as the secondary lender. In most foreclosures today, the properties are significantly underwater thus there are not purchased at auction for the amount owed on the loan. When there is a deficiency between what was owed on the property and what the property sold at foreclosure auction, the balance owed will be considered unsecured debt (because it is no longer considered secured by the property).
Recourse vs. Non-recourse
If the loan was a non-recourse loan (determined by the way the loans were written and the state the property is located) the mortgage lenders may write off the debt as a loss. If the loan was a recourse loan, the lender(s) can opt forgive the debt. The benefit for the lender to forgive the loss would be to receive a tax write off. In that case the borrower would be released from any legal liability. If they do not write off the debt, lender may continue to bill the borrower for the amount of the loan. Some borrowers wait a month or so after the foreclosure to contact the lender to try to negotiate a settlement. Many borrowers have been able to settle their second mortgages for a percentage of the loan amount. Typically, these negotiations occur after the property has been foreclosed. If the lenders will not forgive the debt and will not settle, the debt may eventually be sold to a collection company which can potentially be settled as well. Collectors buy these debts for a percentage of the original debt and can usually be negotiated. Finally, the lender can file a deficiency judgment against the borrower. At that time the borrower should speak with an attorney. There are options even after a deficiency judgment has been filed such as a response to the suit, bankruptcy, a settlement offer or ways to protect the assets the borrower has.