The Foreclosure by Market Sale (FBMS) process had been in effect since January 1, 2015 and I have found it to be an under-utilized program that could benefit those struggling with a job loss, divorce or medical issue that has prevented them from staying current on their mortgage. The FBMS is an additional method of foreclosure only available in CT which will allow you to sell your property at market prices, including the ability to market in the MLS.
This method allows Realtors and lenders to work together to get properties sold much quicker before deferred maintenance or an absent owner can start to affect a property and the neighborhood. Foreclosures by Market Sale are overseen and then approved by the Court in order to close the sale while the property is in foreclosure and at market value, providing a smoother and more predictable exit by the homeowner in favor of a new buyer and hopefully before the financial situation and the condition of the property becomes dire.
Here are the basics of this program:
If you are in default on your first mortgage (usually around 90 days) but before a foreclosure notice is issued, your lender is required to provide you with the option of a FBMS which can be issued with a foreclosure or other notices. UPDATE: Since an amendment in October 2016, the lender is no longer required to offer you the option but you and the lender can mutually agree to the option.
- The FBMS notice will give you contact information of a representative at your financial institution that can assist you in pursuing the FBMS. You must respond within 60 days of the date of the notice. If you choose not to move forward with the FBMS, the lender is free to pursue a foreclosure. If the lender refuses to undertake a FBMS they must notify the court and participate in mediation with you.
- If you both agree to move forward an appraisal will be ordered by the lender. You must allow access to the appraiser and you will receive a copy of the appraisal. The value produced by the appraisal is not binding on you or the lender.
- You can engage the services of a Realtor to assist you in dealing with the lender and the sale. You, the lender and the Realtor must all agree on the conditions and terms of the listing contract. All offers going forward must be submitted to you, the homeowner and to your lender. Most Realtors at Home Selling Team have professional designations and experience relating to short sales and foreclosures so we would be an excellent choice for this situation.
- Your property will be listed in the MLS. The court will approve all the terms of the sale, including commissions and fees to sell the property. Contingencies in contracts are allowed as long as they are reasonable and customary such as mortgage contingencies and inspections.
- All offers must go to your lender, and you and the lender can refuse, accept or counter offer any offer. Once you receive an acceptable offer to you and the lender, the lender has 30 days to start the second phase of the foreclosure which is the court proceeding for the sale.
- Any second mortgage holders or other lien holders will receive a first right of refusal date and an opportunity to purchase the property for the same terms and conditions as your accepted offer. If the lien holders do not act by their first right of refusal date, the liens are removed and the title passes free and clear.
- If you are lucky and your sale proceeds are greater than debt, the court may distribute the proceeds accordingly to the parties entitled to it, whether it be the homeowner or other lien holders. I would expect this would be something that would be determined previous to a final approval of sale.
This could be a better option for those in default, resulting in a more expeditious sale and less impactful on property values of neighbors in the event of deferred maintenance, neglect or vacancy. Utilizing a foreclosure action such as the FBMS enables us to market a property that may have some slight deferred maintenance but still maintains a good portion of its original value. The use of the FBMS option could be of benefit to the overall health of the real estate market in your town and a bright spot in an otherwise grim situation when you are faced with losing your home.