The Foreclosure Sale
Once a foreclosure has been processed through the courts, and the homeowner has lost the case, the property will be sold at a sheriff’s sale. This is a public auction where the lender seeks to recover the outstanding mortgage debt by selling the property to the highest bidder.
- If no one bids on the property or if the highest bid doesn’t cover the mortgage, the property often reverts to the lender and becomes REO (Real Estate Owned).
- The sale typically takes place after a court issues a Final Judgment of Foreclosure, and the sheriff’s office will notify you of the sale date.
Redemption Period
In New Jersey, homeowners have a redemption period following the sheriff’s sale, which gives them a final opportunity to reclaim their home by paying off the full mortgage balance, along with any legal fees and interest. The redemption period is short—10 days after the sheriff’s sale. If you can secure the funds within this timeframe, you can stop the foreclosure process and retain ownership of the property.
- If the foreclosure was uncontested, or if you failed to answer the complaint, the redemption period may not apply, and you could lose your home immediately after the sale.
- Once the 10-day redemption period passes, you no longer have the legal right to reclaim the property, and the buyer at the sheriff’s sale becomes the new owner.
Eviction Process
After the sheriff’s sale and the expiration of the redemption period, the new owner (either the lender or a third-party purchaser) may begin the eviction process. You are not required to vacate the property immediately after the sale, but the new owner must go through the legal eviction process to remove you from the home.
- The new owner must file an Order of Possession with the court, which allows them to formally take possession of the property.
- The court will then issue a Writ of Possession, which authorizes the local sheriff to evict you if you have not left voluntarily.
You will receive notice of the eviction, and if you do not vacate by the specified date, the sheriff may come to the property to enforce the eviction. While this can be a difficult process, there are often opportunities to negotiate extra time to move or even arrange a cash for keys agreement, where the new owner offers financial assistance in exchange for a swift and smooth departure.
Deficiency Judgment
In some foreclosure cases, the proceeds from the sheriff’s sale may not fully cover the outstanding mortgage debt. When this happens, the lender has the option to seek a deficiency judgment against the former homeowner. This allows the lender to pursue the remaining balance owed after the sale.
- For example, if the mortgage balance is $300,000 and the home sells at auction for $250,000, the lender could seek the $50,000 difference from you through a deficiency judgment.
- In New Jersey, lenders must file for a deficiency judgment within three months of the foreclosure sale. If granted, the lender can garnish wages, seize assets, or take other legal steps to collect the unpaid debt.
However, lenders don’t always pursue deficiency judgments, especially if the homeowner doesn’t have significant assets or if the process is not cost-effective for the lender. It’s crucial to consult with an attorney to understand your liability and explore options to negotiate with the lender.
Impact on Credit Score
A foreclosure can have a significant impact on your credit score, and it may remain on your credit report for up to seven years. This can make it difficult to qualify for new loans, secure rental housing, or obtain favorable interest rates on credit cards and auto loans.
While the damage to your credit is unavoidable in the short term, there are steps you can take to rebuild your credit over time. This includes paying your remaining debts on time, reducing credit card balances, and eventually applying for a secured credit card to reestablish positive credit history.
Tax Consequences
In some cases, homeowners may face tax consequences after a foreclosure. If the lender forgives part of your mortgage debt (such as through a short sale or foreclosure), the forgiven amount may be considered taxable income by the IRS.
- However, the Mortgage Forgiveness Debt Relief Act, which has been extended multiple times, allows homeowners to exclude certain types of forgiven mortgage debt from taxable income if the property was their primary residence.
- It’s essential to consult with a tax professional to understand the potential tax implications of your foreclosure and determine whether you qualify for any exclusions.
Exploring Your Options After Foreclosure
Even after a foreclosure, you still have options for moving forward. These include:
- Negotiating with the lender: If the lender is open to it, you may be able to negotiate alternative solutions such as a deed in lieu of foreclosure, which allows you to transfer ownership of the home to the lender in exchange for forgiveness of the remaining debt. This can help you avoid a deficiency judgment and reduce the impact on your credit score.
- Filing for bankruptcy: If you’re facing significant financial hardship beyond the foreclosure, you may want to explore Chapter 7 or Chapter 13 bankruptcy to manage your debts. Filing for bankruptcy may delay the foreclosure process and help you reorganize your finances.
- Renting after foreclosure: It may be challenging to secure a new home to rent after a foreclosure, but many landlords will still consider tenants with foreclosure on their record. Be prepared to offer explanations, show proof of income, and provide positive references from previous landlords to help secure a rental property.
Conclusion
Going through a foreclosure in New Jersey is a difficult process, but understanding what happens afterward can help you prepare for the next steps. From the sheriff’s sale to potential eviction, deficiency judgments, and the impact on your credit score, it’s important to be proactive and seek legal and financial advice to protect your interests. Whether you’re trying to stop the foreclosure or planning for life after it, exploring all available options will help you navigate the aftermath and begin rebuilding your financial future.