It appears that there is a great deal of confusion over the length of time it takes to foreclose on a property. The answer to that question is that it depends upon the jurisdiction, in particular, the state that the property is in.
There are two primary theories when it comes to how real estate is treated as collateral. Most states either prescribe to Deed Theory of Lien Theory with a few states exercising a combination of both.
In a Lien Theory State (sometimes referred to as a Judicial State), a borrower will sign a Mortgage when they borrow money against the property. This Mortgage document places a Lien on the property. The borrower still owns the home, they pay taxes, the pay the insurance, and they are responsible for maintenance on the home. If the borrower defaults on the loan, the lender files suit against the borrower and obtains a judgement through the court system. Foreclosures in Lien Theory States tend to move a bit slower.
In a Deed Theory State (sometimes called a Non-Judicial State), the borrower signs a Deed of Trust instead of a Mortgage. They still pay taxes, insurance and maintenance costs, but they are technically deeding their property over to a Trustee, usually the lender or a representative of the lender, until which time their loan is paid off. The property is then deeded back to them through a Deed of Reconveyance. If the borrower defaults on the loan, the Trustee provides the appropriate notices to the borrower to allow them to cure the default and then, at a certain time, the property is auctioned off by the Trustee to help cover the loan losses.
Lien Theory States include:
Arkansas, Connecticut, Delaware, Florida, Hawaii*, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland*, New Mexico, New York, North Dakota, Ohio, Oklahoma*, New Jersey, Pennsylvania, Puerto Rico, Rhode Island*, South Carolina, Vermont*, Wisconsin
Those with an “*” denote a hybrid between the two systems that tilt toward the Lien Theory system.
Deed Theory States include:
Alabama*, Alaska, Arizona, California, Colorado, Washington DC, Georgia, Montana*, Nebraska, Nevada, New Hampshire*, North Carolina, Oregon, South Dakota, Tennessee, Texas, Utah, Virginia, Washington State, West Virginia, Wyoming
Those with an “*” denote a hybrid between the two tilting toward Deed Theory.
It is very important to understand the laws in your particular State and jurisdiction before you start buying notes or making loans. If you have any questions, reach out to us through the contact page on this site.