Updated Jan 30, 2022

What is Foreclosure?

What is foreclosure?

 

 

When a borrower fails to make several mortgage payments, the lender takes custody of the property is called a foreclosure.

 

You committed to an agreement with your bank or lender when you bought your home and took out a mortgage. They provided you with the funds to purchase the home upfront in exchange for you signing a contract committing to paying a fixed amount each month for a specified period of years.

 

If you fall behind on your payments or stop making them altogether, the bank or lender can foreclose on your home and sell it to recoup the money you owe.

 

 

 

How does Foreclosure work?

 

When you bought your house, you signed a mortgage contract that included the amount of money you borrowed, as well as the interest rate and payment terms.

 

However, just because you live in your house does not mean you own it legally. If you have a mortgage, the bank or lender is theoretically the owner of the property until you pay off the loan.

 

Your lender might begin the foreclosure procedure after you have missed several mortgage payments. Your home can be foreclosed on in two different ways:

 

• A judicial foreclosure, which requires the lender to get a court order.
• Depending on the state where the property is located, a non-judicial foreclosure.

 

There will almost certainly be a waiting time if you wish to buy another house after a foreclosure. Because of the impact on your credit, getting a mortgage after a foreclosure might be difficult, but with good financial habits, you can get approved for another loan in the future.

 

How long does it take to go through a foreclosure?

 

The foreclosure procedure might take months or even years to complete. According to ATTOM Data Solutions, the typical foreclosure in the United States takes 922 days, or approximately two and a half years, as of the second quarter of 2021. The foreclosure procedure took three years or more in certain areas.

 

You are, however, permitted to remain in your house during the foreclosure process. You will be requested to vacate the property after it has been sold. If you refuse, you will be served with an eviction notice, and you and your things will be removed from the property.

 

 

Types of foreclosure

 

Depending on the state and the terms of your mortgage, there are various distinct types of foreclosures. Some foreclosures require legal intervention, while others do not. Foreclosures can in a variety of forms, including:

 

Judicial foreclosure

 

The lender files a lawsuit and the borrower is notified of the non-payment in a judicial foreclosure. If the homeowner does not make up the missed payments within 30 days, the foreclosure process will begin.

 

Power of sale:

 

If your mortgage has a power of sale clause in the contract, you may be able to do a power of sale foreclosure in several states. When a borrower falls behind on their payments, their mortgage company is permitted to auction the home. Because no legal action is taken, a power of sale foreclosure is considered a non-judicial foreclosure.

 

Foreclosure under strict conditions:

 

Because strict foreclosures are only permitted in a few states, they are less common. In this situation, the mortgage lender launches a lawsuit against the homeowner, and if the borrower does not make up the payments within the court-ordered time frame, the mortgage holder may seize the home.

 

There are five steps of the foreclosure process.

 

There are various steps in the foreclosure process, starting with your first missing mortgage payment and ending with the foreclosure auction of your house. These stages may differ by state, but they generally follow this pattern.

 

Step 1: Missed mortgage payments

 

You are unlikely to face foreclosure if your mortgage payment is a few days late. Your lender may grant you a two-week grace period to make your payment without incurring substantial penalties. Your payment will be considered late after the grace period has expired, and you will be charged late fees. If you don't make the payments, your lender might send you a notice regarding a possible foreclosure.

 

Step 2: Default Notice

 

The lender will file a Notice of Default with the local recorder's office after three to six months of missed mortgage payments. Your lender will also send you one via certified mail, and depending on your state, you may be required to put it on your front door. This notice details the amount you are due to get your mortgage back on track.

 

Step 3: Preforeclosure

 

The interval between receiving a Notice of Default and the auction or sale of your house is known as preforeclosure. If you can get your hands on the money mentioned in the Notice of Default during this time, you can stop the foreclosure process from moving forward. The amount of time you have is determined by your current status. During the pre-foreclosure process, you may have the option of selling your house and paying off the debt in a short sale.

 

Step 4: Publish a Notice of Sale

 

How the Notice of Sale is published is determined by your state. In North Carolina, for example, the notice must be published in a local newspaper and put on the local courthouse door, whereas in California, it must be posted on the property as well as a public place in the county.

Due to the public nature of the Notice of Sale and the fact that it has been posted, various buyers, including investors, may be interested in purchasing your home.

 

Step 5: Eviction

 

You'll usually have a few days after the auction and sale of your property to gather your stuff and transfer it to a new location. If you do not willingly vacate the premises, law enforcement officers have the legal authority to remove you and your things.

 

 

How to keep your home from going into foreclosure

 

Being on the verge of losing your home to foreclosure can be terrifying. Even if your present financial condition makes it impossible to pay your mortgage on time, there are several options to avoid foreclosure.

 

Finally, contacting your lender is the first step toward avoiding foreclosure. Your mortgage provider is unlikely to let you off the hook completely, but they can assist you in taking steps to avoid losing your property.

Here are some of the greatest strategies to keep your property from going into foreclosure:

 

 

Use forbearance programs as your advantage:

 

The federal government launched a mortgage forbearance program during the COVID-19 epidemic, but it has since expired. If you have a federally backed loan from Fannie Mae or Freddie Mac, you can still request for forbearance.

 

Change the terms of your loan:

 

If you're having trouble making your monthly loan payment, ask your lender if the terms of your loan can be changed. You may be able to lower your monthly payment in return for a longer amortization schedule.

 

To obtain a deed-in-lieu-of-foreclosure

 

Some states allow homeowners to choose for a deed-in-lieu-of-foreclosure, which entails agreeing to hand up your house to a lender in exchange for avoiding foreclosure. You are not forced to pay your mortgage if you choose this option, but you may be accountable for the difference between the value of your house and the mortgage balance.

 

Make a repayment schedule:

 

Notify your lender as soon as possible if you are unable to make your mortgage payment for a given month. They can usually work up a payment plan that entails making smaller, more frequent installments or deferring payments for a month or two.

 

 

Foreclosure's Consequences

 

If a property fails to sell at a foreclosure auction, or if it never went through one in the first place, lenders—usually banks—take ownership of it and may add it to a portfolio of foreclosed properties, commonly known as real estate owned (REO).

 

Banks' websites usually have listings for foreclosed properties. Real estate investors may be attracted to such buildings since banks often sell them at a discount to their market value, putting the lender at a disadvantage.

 

A foreclosure appears on a borrower's credit report within a month or two following the first missed payment, and it stays there for seven years. The foreclosure is removed from the borrower's credit report after seven years.

 

 

Conclusion

 

If you're having trouble making your mortgage payments, time and communication are your best odds for avoiding foreclosure. As soon as you discover you won't be able to pay your mortgage, contact your lender or servicer to learn about your choices.

 

If you have a brief financial problem, they may be able to put up a payment plan or allow you to defer the payment for a month.