Why does the bank offer a tiny $3500 settlement for the home?

In the start of the movie 99 Homes, a family is evicted out of their home for missing three payments on their mortgage.

But it turns out that the bank literally takes over the home itself the very next day,showing up with police officers and kicking the family out. Offering them a $3500 settlement. How is that legal?

Other than the three missed payments, the family supposedly paid the other payments on time. Even if the bank takes over the home, shouldn't they be auctioning the house, taking out the loan amount and giving the rest to the family?

plot-explanation 99-homes

Best Answer

Just a generic answer on US foreclosures. From a blog article on "Foreclosure Timeline in Washington State", though this seems to be pretty standard timeline for most states, not including any negotiations required by federal or state law, half payments, back and forth, etc. This is a bare minimum, completely uncontested foreclosure.

Day 0 – Borrower misses first payment
Day 60 – Borrower receives Notice of Default (not public record in WA)
Day 90 – Borrower receives Notice of Trustee Sale (public record in WA)
Day 210 – Trustee Sale: Home is auctioned on the courthouse steps
Day 230 – Borrower must vacate the home
Day 237 – Bank begins the “trash out” and clean up process
Day 251 – Bank lists the home on the MLS
Day 281+ – Bank sells home

So generally it goes:

Default. Depends on the contract.
Bank attempts to collect on loan. Fails.
Bank moves for foreclosure. Minimum time spent on notices required by law.
Foreclosure court proceedings. Judge rules for Bank, Bank owns home.
Bank can now start eviction process.

Even when the Bank owns the home completely, anyone living in the home is still a tenant by law, including any rights granted to tenants, or squatters. The bank becomes a land lord. The people in the home are legal squatters at this point, so the Bank has to go through the legal eviction process. A foreclosure is not an automatic eviction.

Eviction Process. In NJ, (Personal Experience as Land Lord) it can be from 1 to 3 months on average.
Eviction granted, notice posted on door. Tenants have a few days to get out.
Tenants ignore Eviction notice after 10 days, Police can evict them by force.
Post Eviction, any remaining items in house supposed to put in storage, house cleaned, prepped for sale.
House goes on Market, sits empty for over a year. Maybe.
Once it sells, any value of the house over the mortgage amount + expenses, if the now evicted borrowers had any equity in the house, is supposed to go to the borrower. The Bank can't make a profit from it. If the house goes for less than the mortgage amount, then the borrower still owes this to the bank. The bank may write it off, then the borrower owes taxes on this written off amount to the IRS. Fun.

At any point, the Bank may offer a Cash for Keys type deal, where instead of fighting the foreclosure or eviction, the bank/Land Lord gives the borrower a few thousand as go away quickly and quietly without breaking anything incentive. The borrower/tenant is not required to accept it. It could also just be relieving them of any debt, depending on the amount.

The Idea that a house would go from default to foreclosure to eviction in 90 days is so wrong that it's patently ludicrous.

Some states, the pre-foreclosure notice period is more than 90 days by itself.

And the idea that there would be a same day eviction is even worse.

In no state is there a surprise eviction. At minimum, there would be a notice physically attached to the front door for a few days prior to a police escorted removal. That 3,500 offered is just to get them to leave quietly. In real life, the equity in the house being returned, if the house sold for more than the mortgage amount, would happen a few months or years AFTER the eviction.