Foreclosure is the process by which a lender sells or acquires ownership of real estate attempt to recuperate the outstanding balance of a defaulted loan. The foreclosure process differs from state to state, but there are six general stages to the foreclosure process.
Stage 1: Defaulting on Payment
Defaulting on payment happens when a borrower is behind on payment on at least one mortgage payment, definition may differ depending on the lender. Following the first payment delay, the borrower will be contacted by the lender by letter or phone.
Mortgage payments are usually due on the 1st of each month, a lot of lenders offer grace periods of 15 days. The lender may then charge late fees and send non-payment notices.
By law, a lender is obligated to reach out to a borrower if a mortgage payment is 36 days late. Within 45 days, the lender must give written notice of default, including details of loss mitigation or repayment options that may be available to the borrower.
A borrower must be a minimum of 120 days late on his mortgage payments for the lender to legally initiate the foreclosure process.
Tip: If you get a notice of default, it is crucial that you contact your lender right away to discuss your options. You may still have the possibility to modify your loan, draft a repayment schedule, request a short sale, or give up your property.
Stage 2: Foreclosure Initiation : Filling & Trialing
A mortgage administrator, called a mortgagee, usually initiates foreclosure proceedings after his payment is 120 days late. The total duration of a foreclosure differs depending on the states, type of foreclosure, and type of mortgage. It may take six months or more for the lender to obtain clear title to the mortgaged property.
The lender files a foreclosure action against the borrower, also known as a “complaint.” Some states require lenders to demonstrate that they have provided loss mitigation options to borrowers prior to filing a lawsuit.
Foreclosure proceedings are brought to court and the borrower has the right to challenge and defend the foreclosure. In the case that the court decides in favor of the lender the property can be put up for sale.
When this happens, the lender will inform the borrower of sale with the date of the sale of the foreclosure. Until the sale occurs, the homeowner can reverse the loan (if allowed by state law) or file for bankruptcy to stop the foreclosure.
Stage 3: Property Sale
Foreclosure sales are usually public auctions where the property is won by the highest bidder. The Lender will calculate the starting bid amount based on the outstanding loan value and lien, unpaid taxes and costs associated with the sale.
In the event that the property doesn’t sell at the auction, the lender has to right to keep it as a REO (Real Estate Owned) property and attempt to sell it later.
Important: If the foreclosed property is sold at auction but the sale price is not high enough to cover the mortgage balance, some states authorize the lender to fill a suit against the borrower who defaulted on the original loan the difference to obtain a default judgment. If the property is sold for more than the mortgage balance, the borrower will have the option to recover the excess funds later.
When purchasing a foreclosed property, the buyer determines how long the previous owner can reside in the newly acquired home.
Once the winning bidder has been determined and the sale is complete, the deed of trust of the sale will be delivered to the winning bidder. After that, the property becomes the property of the buyer and the buyer has the right to own it immediately.
Stage 4: Eviction
Once the auction has ended and a new owner has been confirmed ( the auction winner or the bank if the property is not sold), the defaulting borrower will receive an eviction notice if they are still living in the property. This eviction notice requires everyone living in the sold property vacate it immediately.
State law may outline the exact timeline. if the eviction date is not respected, local sheriffs may be required to remove the habitant of the house and their belongings from the premises.
Advice: Unfortunately, eviction is not the only problem to foreclosure. Borrowers affected by foreclosures will also have their credit scores greatly lowered, and foreclosures will remain on their credit reports for up to seven years.
If you are facing foreclosure and are not familiar with the process, you should contact a credit reporting agency or seek professional advice from a foreclosure attorney.
Reminder: As stated in our article entitled: Why a cash offer may be better than a financed offer. “If you’re late on your mortgage payments with no hope of catching up, the foreclosure is not your only option. You can sell your house to a cash buyer and avoid the negative effects of foreclosure or a short sale. While this may not be the most optimal way to sell your home, it can be a great option if you’re at risk of moving toward foreclosure. ”
