Foreclosing on a property lien can be tricky, especially if there are other liens on title, namely a first mortgage. If there is first mortgage, the holder of that lien will be paid first if the house is sold or refinanced. They also have the right to foreclose without contacting any other lien holders. For you to take possession of the home, you must be in first position as the owner of the lien in first position. Read more for help.
Be sure the borrower has defaulted according to the terms of your contract. To begin any collection or foreclosure process, you must have legal rights to collect a debt. If you are certain you have legal rights to foreclose, proceed with the process. If you are consult with an attorney. An experienced real estate lawyer will help you determine where you stand in terms of lien position, how to begin collection proceedings and finally, turning the matter over the courts.
Know your rights pertaining to your lien. Some liens are simply attached to the property and the lien holder is paid from the proceeds of a sale or refinance. Others allow the lien holder to take possession of the property (a first mortgage). Some liens cannot be foreclosed on because of their position. It is, therefore, vital to determine where you stand in line to get paid.
Determine which position your lien is in. If your lien is in first position, you are ideally poised to take possession of the property if your borrower is in default. If you are not, you must either buy out the liens ahead of yours and foreclose as the owner of the first mortgage. Or, you may negotiate to have other lien holders buy your lien, which will pay you off. To proceed with any of these options, however, you first must know where you stand on title. To determine your position, contact a title or abstract company and have a representative conduct a title search, which will reveal all liens attached to the property.
Begin the collection and foreclosure process. Begin by contacting the borrower in writing to recover late payments. If the borrower does not respond or refuses to work with you, you may, depending on your state's laws and contract, accelerate the lien, demanding it be paid in full. If the borrower still does not respond, you may turn the defaulted contract over the court, at which time the process of legally forcing the borrower to surrender the property will begin. This is the perfect time to hire an attorney, if you haven't already.
Allow your attorney to work with the courts on your behalf. After you have attempted to resolve the situation to no avail, your lawyer will ask the court permission to distribute official legal notices to the borrower, indicating the lien is being foreclosed upon. This stage of the process may also involve the sheriff or police department, which the court will appoint to serve specific documents to the borrower, notifying them they must vacate the property in a specific amount of time.
Take possession of the property. After you have gone through the legal channels of the foreclosure process, you will be given sole possession of the property. To recover funds the borrower owed you under the original contract, which becomes null and void at this stage in most states, you may sell the property or do with it what you wish.
The foreclosure process could last from 2 to 6 months or more. Always be available to you attorney and to appear in court if needed.
Always follow the foreclosure and collections laws when attempting to collect a debt. Never use strong-arm tactics to collect on an unpaid lien. Doing so could result in criminal prosecution or a civil lawsuit, making your attempts to get paid unsuccessful.
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed Sep. 18, 2020.
- Experian. "Tax Liens Are No Longer a Part of Credit Reports." Accessed Sept. 18, 2020.
- Experian. "What Affects Your Credit Scores?" Accessed Sep. 18, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act 15 U.S.C § 1681," Page 22. Accessed Sep. 18, 2020.
- The foreclosure process could last from 2 to 6 months or more. Always be available to you attorney and to appear in court if needed.
- Always follow the foreclosure and collections laws when attempting to collect a debt. Never use strong-arm tactics to collect on an unpaid lien. Doing so could result in criminal prosecution or a civil lawsuit, making your attempts to get paid unsuccessful.
Jim Hagerty is a writer and journalist who began writing professionally in 1996. He has had articles published in the "Rock River Times," "Builder's Journal" and various websites. He earned a Bachelor of Science in public relations and journalism from Northern Michigan University in Marquette.