With today’s economic woes, there are
many people who are finding themselves having to experience foreclosure
on their homes. Foreclosure allows the lender to recover what is owed
on a loan that the purchaser defaults on. Although when foreclosure
begins, the distressed homeowner may be at wits end and feel there is
no other recourse, there are several ways that a foreclosure can be
ended. These ways include:
- The homeowner is able to reinstate the loan by paying the default amount owed during a grace period known as pre-foreclosure. This grace period is determined by applicable state law.
- The lender seizes the property, most often for the purpose of selling it. The lender can take possession of the property either during pre-foreclosure, at an auction or by an agreement with the borrower.
- The borrower sells the property during the pre-foreclosure period. Such as sale allows the borrower to avoid paying a foreclosure and protects the borrower’s credit rating.
- A public auction is held and a third party purchases the property after the pre-foreclosure period.
Foreclosure Process
The process of foreclosure does not
happen overnight. Although foreclosure is not very difficult to
understand, it should be clear that there are different foreclosure
laws for different states. Don’t assume that you understand foreclosure
in your state just because you are familiar with the laws in another
state.
- Foreclosure is an automatic process. Most lenders are not required to notify you that your home is going to go into foreclosure and the same majority will simply start foreclosure proceedings without notification. For the most part, a lender may start the foreclosure process at any time that you are delinquent on your loan.
- Once you are three or more months behind on your loan, your lender will record and file a document know as the Notice of Default (NOD) with the recorder’s office. Foreclosure can be avoided if the loan is brought current within five days of receiving this notice.
- If the loan is not made current within three months, the property is placed for sale in the newspapers of the county where the house is located. This Notice of Sale is posted on the property and delivered to the borrower.
- The lender can choose to have a foreclosure auction rather than a sale. For an auction, the highest bidder wins. Typically, a foreclosure auction price includes the balance of the loan, attorney fees, interest accrued and any other associated fees. If a property does not receive an opening bid, it is determined that the property is real estate owned (REO). This can happen when the property is not worth as much as what is owed on it.
To avoid misinterpretations and
misunderstandings about foreclosure and how the process works, refer to
the laws that apply to the state you live in.
