Most of us associate buying a home with one of the most significant and special times in life – especially when we’re talking about our first home! When we first sign the papers when purchasing our new real estate, it’s often overwhelming. But, it’s also a feeling of accomplishment, sophistication, and stability. These are all great feelings. But problems happen even in Louisville and you have to consider what are you going to do when foreclosure files against your home. The purpose of this article is to introduce to you how Kentucky foreclosure works. My intent in doing so is to arm you with the knowledge you need in the event of foreclosure in your life.
How Kentucky Foreclosure Works
Owning a home comes at a constant monthly cost and sometimes it has unexpected expenses. Never-the-less, it is extremely easy to find yourself in the position of losing your new home. This might be due to several factors such as lack of financial planning, poor organization, divorce, disability, death, or loss of your job.
In explaining how Kentucky foreclosure works, we first explain the foreclosure process for judicial states like Kentucky and examine in detail how it works. First, we start by defining foreclosure. Then, we look at the types of foreclosure and finally, dive deeper into the process.
By the end of this read, you will be familiar with the stages of foreclosure, how it processes, and the potential consequences. In other words, prepare for a journey that equips you with enough information to fully understand the foreclosure process. After all, information is a valuable asset and helps you avoid a ton of future issues. Remember to also download our bankruptcy manual if you want to go deeper into the topic.
Foreclosure seems complex and difficult. Especially if you dig deep into all of the intricacies and segments that form a virtual spider’s web of information. However, it’s easy to understand foreclosure from a practical point of view. Either way, this is a topic that you must study to know how Kentucky foreclosure works.
First, if we go for the extremely short and straightforward answer, then, foreclosure is simply a home that once belonged to a homeowner but is now in the process of being sold by the court. After that, the bank follows rules to go through the steps to foreclose. Interestingly, if we look at Investopedia, the definition of foreclosure is as follows:
“the legal process by which the court or lender takes control of a property, evicts the homeowner and sells the home after a homeowner is unable to make full principal and interest payments on his or her mortgage, as stipulated in the mortgage contract.”
Kentucky is a judicial foreclosure state. In other words, in Kentucky, it is the court that takes control and sells the property. As we mentioned earlier, there are several reasons that a home can go into foreclosure.
Some of the most common reasons for foreclosure include the following:
- The homeowner might lose their job and is no longer able to pay the monthly house mortgage.
- The homeowner no longer works due to medical conditions.
- A job transfer to another state occurs as a result of career development or reorganization.
- The homeowner is unable to financially cover significant maintenance costs.
- The homeowner has too much debt or other financial obligations.
- Potential divorce or disputes occur with a co-owner of the house.
Who Files a Foreclosure?
Going into foreclosure is rarely a matter of choice and there are many sad situations that might cause this to happen. For example, foreclosure happens for not paying the property taxes or a judgment creditor might attach the home and sell it. So, it isn’t just your mortgage company that files a foreclosure.
Interestingly, because there are about 130 different defenses about this topic, this process can sometimes extend out for years. In fact, a judgment creditor might sell it years after attaching the home. Believe it or not, one lender took 16 years to file a foreclosure.
Homeowners usually at least try to explore every possible way to avoid foreclosure or bankruptcy. But, often bankruptcy is often the only way to save a home. Remember, you can’t trust the bank or the bank’s attorney. They are employees of the bank, and they do not have your best interests in mind.
So now, let’s learn a little bit more about how Kentucky foreclosure works by taking a look at the process and the different types of foreclosure.
What is the Foreclosure Process?
The foreclosure process varies from state to state. In fact, every state has its own unique laws for the process. For example, the time requirements for lenders to give notices vary. The timelines and steps are also different for each option such as a short sale, modification, deed in lieu, or Chapter 13. In addition, homeowners have different alternatives when it comes to preventing foreclosure. Plus, each alternative has extremely different benefits, costs, and timelines.
As a homeowner, if you fail to make two months’ mortgage payments, you at risk for the start of a foreclosure process. Please be aware that it is highly advisable to look for help before you are 60 days overdue. After that point, the mortgage company refuses payments and it may be too late to do any pre-foreclosure option.
Again, if you believe that you are facing difficulty with your mortgage, speak to a professional to see what can be done. Then, your options might include delaying the length of time it takes to foreclose or you might simply stop a foreclosure by filing Chapter 13.
Remember, the mortgage company or the servicing company looks at this as an opportunity to earn additional fees. Servicers often collect 40% or more of any late charges and often delay posting a payment to increase the penalties in order to collect that additional amount.
Types of Foreclosure
Foreclosure types vary across different regions of the United States. The two following separate types of foreclosure are interesting to observe:
⎆ Judicial Foreclosure in the Early Stage
Kentucky uses the judicial foreclosure system. The full process is taken care of by the court. This type of foreclosure is legal in all states and takes place when the lender files a lawsuit to sell the property to satisfy the debt. The mortgage company is also often seeking a judgment against the homeowner. If the property sells for less than the amount owed the lender files a 1099 and takes a tax deduction and the homeowner gets a tax debt from 1099 unless he has filed bankruptcy or is otherwise not liable for the debt. Judicial foreclosure consists of foreclosure by sale and is often called a strict foreclosure.
In a judicial foreclosure, a complaint is filed. If no answer is filed the lender normally wins by default. Even if an answer is filed the lender normally eventually wins by summary judgment. The home is then auctioned, and the highest bidder wins. After the sale, it is too late in Kentucky to file a Chapter 13 and just catch up on the debt. After the auction, the debtor no longer has any rights to the home other than a right of redemption to buy back the property from the new owner.
⎆ Judicial Foreclosure the Final Stage
There is a right to purchase the property back if the property sells for less than 66% of its value. In a Kentucky foreclosure, the lender normally bids up to 66% of the price of the home to cut off this right of redemption. The owner is provided by the court with a final issue date on which the sale will occur. Some lenders may allow you to catch up on the mortgage and they will stop the sale. However, technically the lender can require you to completely pay off the bank. Then, if the owner is unable to meet this requirement, the home is sold to the highest bidder.
To start a judicial foreclosure, the lender files a lawsuit along with a lis pendens or notice of the pending lawsuit. This document aims to inform potential buyers and lenders of the pending foreclosure lawsuit. When the court announces the auction time and bid amount, a Notice of Foreclosure Sale or NFS is published in the paper twice before the sale. In Kentucky, a commissioner must advertise the sale for two weeks, and then the property is sold.
⎆ Non-judicial Foreclosure
The non-judicial form of foreclosure allows the lender to transfer or sell with no necessary involvement by the court. However, the steps are provided by the state and are carefully monitored. You can find the non-judicial type of foreclosure also referred to as Deed of Trust Foreclosure. States like Mississippi and California use this process which may involve a deed of trust.
For this type of foreclosure to take place, the borrower must have provided his consent at the time of receiving the loan. This is made possible due to the power of sale clause, which is part of the deed of trust. This clause gives a third-party trustee authorization to sell the property in case the borrower is no longer able to complete their payments.
To start a non-judicial foreclosure, a Notice of Default is filed with the County Recorder’s office. The homeowner is put on notice. The homeowner can then file a lawsuit to prevent the Trustee from selling or transferring the property to the bank. A Notice of Trustee Sale is normally filed between 30 and 120 days after the Notice of Default. Every state has a different time frame, but a notice announces the date and time of an auction or transfer.
The Stages of Foreclosure
⎆ Early Stages of Foreclosure
Until now, we have discussed foreclosure from the viewpoint of the homeowner. Let’s turn things around and observe the process from the point of the lender or an investor who is purchasing the property at the sale. There are two early stages of foreclosure in which lenders and investors involve themselves. This is in addition to the “Planning Your Foreclosure” stage below which is a third way investors and lenders involve themselves.
The two early stages of foreclosure in which lenders and investors involve themselves are as follows:
- Pre-foreclosure – this is the best stage for lenders and investors to intervene. During this stage, the homeowner’s credit rating might still be saveable before the worst damage occurs. For example, you might be able to sell the property before the lender files a foreclosure. You can also attempt a workout agreement, short sale, and multiple alternatives. But, you must take action quickly.
- Foreclosure stage – at this stage, a lawsuit is filed by the mortgage company at the County Clerk’s office. This is the stage when investors attempt to purchase the home at a bargain. They learn of your foreclosure by researching the courthouse records or signing up for advance notices of pending defaults and foreclosures.
⎆ Planning your Foreclosure
When you are served with the foreclosure, you must decide to either defend the foreclosure in state court or catch the mortgage up in Chapter 13. However, there are other options you can take such as a short sale or mortgage modification. Additionally, if you no longer want the home, you might want to delay the foreclosure process by litigating it in state court. Interestingly, fighting the foreclosure in state court often delays the foreclosure 1-3 years or longer. The longest we have ever delayed a foreclosure was when a foreclosure we defended lasted over 15 years.
The third stage of planning your foreclosure in which lenders and investors involve themselves is as follows:
- Post-foreclosure – after the sale, the investor or bank who purchases the property becomes the owner of the property. Either an investor or the bank can purchase the property. It is often the lender’s Real Estate Owned department that buys the property. After the sale, it is too late to file bankruptcy or do most of the alternatives to keep the home. Unfortunately, you no longer have rights to a home after the sale.
What if a Property Doesn’t Sell at Foreclosure Auction?
So far, so good, but how do we know that the property raises enough interest in investors that it sells at a foreclosure auction? What happens if there is no interest in it whatsoever?
If no one purchases the home at a foreclosure auction, lenders or banks in most scenarios gain ownership. Once the bank owns the property, they include it in a portfolio along with other properties in foreclosure. Properties in foreclosure are often viewable on some banks’ websites and often sell to investors who buy them to make a profit.
The discounts made on foreclosed properties are not beneficial for the lender. It is also interesting to point out that the borrower’s credit reports can show a foreclosure for as long as seven years. You can normally buy a home after making payments on time in Chapter 13 for one year. Also, you can buy a home two years after a Chapter 7 discharge. But, you must wait 3–7 years to purchase a home after a foreclosure.
Another important point to remember is that foreclosure has a more severe impact on a borrower’s FICO score than bankruptcy. In fact, it leads to a wide range of negative consequences.
The Importance of Knowing How Kentucky Foreclosure Works
We’ve covered a lot of details around the foreclosure process. So, if you haven’t had experience with this type of process, you might be wondering why you should inform yourself in the first place. That’s an easy answer because the more information you have, the better off you are when facing foreclosure. You can find even more information about Foreclosure on our YouTube channel where we publish regularly.
There are several risk factors that are worth exploring to make stable plans for your financial future. Furthermore, understanding the process of foreclosure gives you an orientation of what might be ahead if you do happen to face foreclosure at some point.
It is important to choose wisely when selecting a professional partner to assist you through every step and provide expert guidance. If you are in search of a reliable foreclosure attorney with lots of experience, call us!
Resources for Foreclosures
Where to Report Foreclosure Scams
Federal Trade Commission (FTC) for foreclosure scams.
Trustee Regions and Offices for foreclosure scams that involve bankruptcy
Other Related Information
If you want to settle your foreclosure lawsuit and stop harassing debt collectors, contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905