How Foreclosure Works
In most cases, foreclosures happen when a property owner does not make the required mortgage payments. The owner’s bank, or other lender, sells the property to get its money back.
The bank must give the owner several notices. This gives the owner a chance to make up the missed payments.
If the owner is in the military, the bank must usually wait at least 9 months until after the owner’s military service ends before it forecloses on a mortgage the owner got before she joined the military.1 Banks usually show they have obeyed this rule by filing a court case.
If the judge decides that no one is in the military, the judge will make a judgment. The judgment will say the bank is not breaking the law if it forecloses. The bank must file the judgment at the Registry of Deeds, in the county where the property is located.
When the bank forecloses, it can hold an auction to sell the property. In Massachusetts, the bank does not have to ask a judge in order to hold the auction.2
The bank will:
- Set a date for the auction. Advertise the auction in a local newspaper.
- Mail a notice to the property owners and people who owe the mortgage by certified mail.3
- Hire an auctioneer to stand outside the house to sell the property.
- Hold the auction on the property that is being foreclosed.
- Sell the property to the bidder who offers the most money. Often the bank buys the house at the auction and becomes the new owner.
- As a tenant, you have rights when your landlord gets foreclosed, but you need to take action to protect those rights. The new owner may try to evict you, shut off your utilities, keep your security deposit or last month’s rent, or say you do not have legal rights after the foreclosure.
Start to protect your rights as soon as you learn your landlord might lose the property to foreclosure.
If you are a former owner of a foreclosed property, your legal rights are not the same as tenants. See: Rights of Former Homeowners After Foreclosure.
1 . 50 U.S.C.A. § 3953. This is called a Servicemembers Civil Relief Act petition. An amendment passed in 2012 established that the wait period is 1 year. This was extended to be effective until December, 31, 2017. On January 1, 2018, this time period reverts to 9 months. Pub. L. 112–154, title VII, §710(d)(3), Aug. 6, 2012, 126 Stat. 1208 , as amended by Pub. L. 113–286, §2(2), Dec. 18, 2014, 128 Stat. 3093 ; Pub. L. 114–142, §2(2), Mar. 31, 2016, 130 Stat. 326, provided that: "Effective January 1, 2018, the provisions of subsections (b) and (c) of section 303 of the Servicemembers Civil Relief Act (50 U.S.C. App. 533) [now 50 U.S.C. 3953], as in effect on July 29, 2008, are hereby revived."
2 . When banks foreclose without going to court they use the "power of sale." To use the power of sale, banks must follow all the terms of the mortgage and obey state foreclosure laws.