When a lender forecloses on a house, the property deed transfers or conveys from the owner to the lender. For U.S. Department of Housing and Urban Development (HUD) or Federal Housing Administration (FHA) insured loans, the property must meet certain condition requirements before the deed to the property can transfer from the property owner to HUD.
Sheriff’s Sale Deed
One of the last steps in the foreclosure process is the sheriff's sale or public auction. If no one bids on the property at the auction, ownership conveys or transfers to the lender by sheriff's sale deed. If other parties bid on the property the lender will most likely bid as well. The party with the highest bid wins the auction and ownership coveys to the highest bidder through a sheriff's sale deed. The sheriff's sale deed is a temporary deed that gives the new property owner the right to sell the property should the owner fail to reinstate his mortgage before the end of his redemption period.
Redemption Period Expiration
During the redemption period the owner can reinstate his mortgage and keep his property. At no time during the redemption period may the person or entity holding the deed sell or make plans to sell the property because they do not technically own it yet. Redemption periods differ by state. If the owner redeems his mortgage, then the sheriff's deed from the foreclosure auction is destroyed and he retains ownership of the property. If the property owner does not redeem his mortgage, full ownership and rights convey to the lender or the person who placed the highest bid at the sheriff's sale auction.
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Deed-in-Lieu Lender Conveyance
A deed-in-lieu of foreclosure comes about when the property owner voluntarily transfers ownership to the lender; it is sometimes referred to as a voluntary foreclosure. Lenders must agree to accept a deed-in-lieu of foreclosure and are not obligated to do so. If a lender accepts the deed-in-lieu, the property owner signs the deed over to the lender. This conveys ownership from the borrower to the lender. If the lender declines the deed-in-lieu of foreclosure, it will most likely go through the entire foreclosure process to obtain ownership of the property.
Deed-in-Lieu HUD Conveyance
Property owners with HUD or FHA insured loans must meet conveyance conditions of the property before the government will accept the deed-in-lieu of foreclosure. Common conditions that must be met before a HUD conveyance include that no one is living in the property, the property is clean, free of personal belongings and debris both inside and out, the property meets local building codes, and the property is secure. Ownership transfers once these conveyance conditions are met.