Foreclosure is the process that allows a lender to recover the amount owed on a defaulted home loan by repossessing and selling the property securing the mortgage. Although foreclosure laws vary from state to state, there are a few general steps that apply to most foreclosure situations. Here’s a short step-by-step guide to the foreclosure process.
Step 1: Pre-Notice of Default
In some states, including California, the first step in the foreclosure process involves the lender sending out a Pre-Notice of Default. Lenders typically send out these notices after payments are delinquent for 45 to 60 days. This notice tells you exactly how much you need to pay to make your mortgage current. It also informs you of how much time you have to cure the default. No official legal action has been taken at this point and many homeowners sell their properties to avoid facing a full foreclosure. Not all states require a pre-notice of default. In many states, the foreclosure process starts with step 2 or 3.
Step 2: Workout Attempts
In most states and with a majority of lenders, the borrower is given the opportunity to work out a viable payment plan. In today’s sluggish economy, lenders have become very receptive to modifying original mortgage agreements. For example, your lender might be willing to ignore your missed payments and will add the delinquent amount onto the end of your loan term. If you are at this stage of the foreclosure process, consider taking advantage of any workout attempt that gives you a little breathing room.
Step 3: Notice of Default
After 90 days of missed mortgage payments, lenders usually send out a Notice of Default, or NOD. This notice serves as the first formal step in the official foreclosure proceedings. At this point, you normally still have the opportunity to bring your mortgage payments up-to-date by a specific date. If you can’t catch up on payments by the deadline, your lender might foreclose on your home.
Step 4: Notice of Foreclosure
If the homeowner hasn’t been able to come up with a workout solution to their debt and does not get up-to-date with payments, the next of the foreclosure steps usually involves the lender sending out a Notice of Foreclosure. This notice informs you of your rights during the foreclosure process. These rights vary according to your state of residence. The notice also tells you the planned auction or sale date of your repossessed property.
Step 5: Auction or Sale
Lenders can sell or auction off your home as quickly as 21 days after filing the notice of foreclosure. In some states, foreclosed properties are auctioned off right there on the steps of the courtroom immediately following the judgment. In other states, selling a foreclosed property could take up to a year. Once the auction is complete, you usually have between 14 and 30 days to move out of the home. If you don’t leave the property by the set date, the local sheriff’s department can enter the premises and forcefully remove you and your possessions.
Step 6: The Redemption Period
Some states offer a post-sale redemption period to borrowers who have lost their homes. The borrower must now pay back the total balance of the home loan and all of the legal and other fees that the foreclosure process has accrued. The length of the redemption period varies according to state law. If the borrower can repay the lender, the winning bidder of the foreclosure auction loses ownership to the home and the original owner takes back possession.
In summary, the foreclosure process is stressful but you have plenty of time to catch up on your delinquent payments. If you are facing a foreclosure, the best option is to talk to your lender about modifying your payment schedule. Use an online mortgage calculator to determine various workable repayment schedules before talking to your lender.
More Posts About the Foreclosure Process
- What Happens When You Foreclose on a House? There are a lot of things to consider when you are facing the possibility of a foreclosure. The effect that the foreclose will have on your credit, how much time you will have to move, and whether the bank can come after you to collect if the house doesn’t sell for a high enough price are just a few. Before you can decide what you are going to do about your situation, you need to know what happens when you foreclose on a house. The Timeline for Foreclosure The foreclosure process can take anywhere from one to ten months, depending on which state you live in. Foreclosure.com is the best resource I have found for state foreclosure laws. Just follow the link above and click the name of your state for more information on the timeline and the specifics of foreclosure in your state. What Happens When You Foreclose on a House Even though different states have different laws, there are similarities between them when it comes to what happens in home foreclosure. Foreclosure follows a similar process, no matter where you are. First, the lender attempts to get you to pay by sending a late notice or calling to remind you that you ...
- 4 Different Stages of Foreclosure 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 ...