When people buy properties by taking out mortgage loans, the lender gets an ownership interest in the property. That is, the property serves as collateral. This means that if you borrow money on a house and are not able to make the mortgage payments, the lender has the legal right to take possession of your property and evict you. This process is called foreclosure.
Foreclosure is a legal process and it does not allow your lender to take possession of your property very quickly. There are four stages in the foreclosure process. All the stages or the steps are set according to the foreclosure laws of the individual state that you live in. These laws allow your lender to seize your property if you are delinquent but there are various steps or stages that they need to go through. It is important for you to have knowledge about these steps so that you can formulate a reasonable plan in order to stop foreclosure.
There are four stages of foreclosure:
- Pre-foreclosure stage: When you start falling behind on your mortgage loan and are not able to make the payments, the bank or your lender will put your mortgage into pre-foreclosure. When you are in this stage, the lender or the bank that has lent you money will call in order to work out a plan with you. At this stage, you are accumulating late charges, which are added to the amount you owe and make it even more difficult for you to catch up on your payments and stop foreclosure.
- Notice stage: In the second stage your lender will file a lawsuit if your state uses a judicial foreclosure process. In a non-judicial process, the lender notifies the trustee to begin foreclosure proceeding. Either way, you will be served with a Notice of Default or similar document telling you that your home is about to be foreclosed. You will be given a particular period of time in which you have to answer the complaint. In a judicial foreclosure, the hearing is usually held in the county courthouse. Your lender will be able to get a default judgment against you if you fail to file an answer or fail to appear in court in order to fight the foreclosure. This means that your lender can get your house easily if you do not stand for your foreclosure rights at this point in time. If you want to fight the foreclosure, you need to appear in court at the time of the hearing.
- Auction of the property: The final step in the foreclosure process is the auctioning of the property at a sheriff sale by the local court system. Alternatively, in the case of a nonjudicial foreclosure, the sale will be handled by the trustee. After the auction is complete the new owner will be provided some temporary proof of ownership. This allows the new owners to take possession of your home. Most of the time, it is the mortgage company that purchases the property when it is auctioned.
- Redemption period: In most states, once your house is auctioned there is nothing to be done. However, in some states, even after your house has been auctioned you will be provided with some time to save your home. This period is called the redemption period. During this period you can not be forcibly removed from your house. You can use this time to find a way to pay off the auction amount. Only a few states grant you a redemption period, so familiarize yourself with your state foreclosure laws before you plan what you will do.
Awareness about the stages of foreclosure is essential for you to create a plan to stop the foreclosure of your home. The knowledge of the stages or steps alone will not save your property, but will help you formulate a plan of action.