Foreclosure Policy

If your organization makes real estate loans, you will need to have a Foreclosure Policy in place.  Use this as the base to create a policy for your organization.

PURPOSE: The Board of Directors recognizes that from time to time the credit union may have to foreclose on a real estate loan. In light of this, the following policy is established to ensure: 

• An appropriate Risk Assessment for foreclosing and holding of a foreclosure is properly performed.
• Levels of risks are established in relationship to holding a foreclosure.
• Proper accounting of the foreclosure is done.
• A strategy for either the liquidation or holding of the foreclosure is done.

FORECLOSURES AND RESPONSIBILITY:

As a last resort, the organization will begin the process of foreclosing on the property…In doing so the organization will follow all foreclosure laws and will do so by obtaining appropriate legal counsel.

Foreclosure should be initiated when a real estate secured loan becomes ninety (90) days (depending on the collateral and the individual situation) contractually past due and satisfactory up-to-date payment arrangements cannot be obtained, or when a real estate secured loan is determined to be unrecoverable for any other reason.  The action to proceed with foreclosure must be taken seriously, and upon a full review of the account information.

The CEO is responsible to establish if a workout loan or foreclosure is in the best interests of the credit union and the client. Prudent workout arrangements, in the long term, can be in the best interest of both the credit union and the client. However, when foreclosure is unavoidable, the credit union will seek legal counsel to consider all the risks associated with the foreclosure and the liquidation of the foreclosure. 

The CEO must approve foreclosures after an analysis of the anticipated equity in the real property and the borrower's financial situation.

WORKING WITH REAL ESTATE LOAN BORROWERS:

If a decision is made to proceed with a foreclosure, copies of the Note and Mortgage are sent to the attorney selected for legal action along with any required retainer.  The Director of Lending should contact the attorney periodically to update the status of any legal accounts and ensure proper follow-up.

The Director of Lending should place a comment "Refer to Attorney" on the account.

It is important to keep record of all expenses paid in the client's folder, including legal, updated appraisals, title, etc.  All collection costs will be added to the outstanding loan payoff balance.

Once the account has been forwarded to the attorney, if the owners of the property contact the attorney regarding reinstatement, it is important to refer them to our foreclosure attorney.  The organization's acceptance of money/payment from the client may remedy the default without total payment of expenses, and/or require the organization to re-initiate the foreclosure process.  Our attorney will advise as to whether to accept any loan payments while the account is in the process of foreclosure.

In the event the organization wishes to cancel or postpone the trustee's sale, the Director of Lending will furnish written instructions to the foreclosure attorney.  We must also advise our attorney if the organization intends to seek a deficiency judgment or collect rent from the subject property.

The attorney will file all required documentation with the appropriate judicial authority, advertise the property in appropriate media, provide the credit union with copies of all papers filed and documents created in the process.  The trustee's sale date is usually 90 days from the date the paperwork is submitted to the proper authorities, although this can vary with the number of foreclosures being processed by the County and any delays along the way.

If a client desires to reinstate their loan after the organization has initiated foreclosure, the client must pay all past due payments plus any foreclosure (attorney) costs that have been incurred.

If the property goes to foreclosure auction, the organization will work with the attorney to set the opening bid for potential buyers.  This will take into consideration any superior liens, the value of the property, the balance owed on our loan and the number of potential buyers, among other factors.  If no acceptable bids are made, the organization will purchase the property at the opening bid price.

If the auction price is accepted, the auctioneer and the organization attorney will complete the paperwork to document the price, buyer and conditions of the sale. 

The time it takes from the date of the initial foreclosure action to final ratification can be anywhere from one to over two years, depending on the volume of foreclosures, how quickly the sales are processed by the court and if any objections are raised.  Until the final ratification is received, while the buyer has an interest in the property, the buyer cannot begin to take possession of the property (i.e., evict tenants, gain entry to house, change locks, dispose of household property, etc.).

If organization purchases the property, a determination will be made by the CEO upon the best method of marketing the property and what repair costs should be authorized.  All pertinent foreclosure sale information will be recorded to insure we account for the property in our financial reports and obtain satisfactory insurance on the property.