Foreclosure happens when a creditor or lender legally takes control of a property, evicts the owner and sells it. This occurs when the property owner is not able to pay the principal and interest on their mortgage loan as agreed in the contract. The homeowner may try to avoid this by using different options. If all of these fails, then the creditors take possession of the home and the property owner forfeits all their rights to it. You can learn more here.

The terms “homeowner” or “property owner”, although used often, does not accurately describe the defaulter who should best be described as “a borrower”. This is so because in the real sense, the person involved took a loan and there was an agreement that involved the purchase of a home. In other words, the borrower took a mortgage which is a loan agreement between a lender or creditor and an individual for the purchase amount of a home minus the down payment. The contract puts a lien on the property and in essence makes the loan secured.

Unsecured loans are when a creditor lends money without a collateral. These are harder to collect or retrieve from borrowers when they default. A secured loan often requires the borrower to put down some form of collateral. In the case of a foreclosure, this is the property purchased so that if there is a default, the lender can sell off the collateral to recover most if not all their money back.

How a Foreclosure Happens

This may vary from state to state but the basics factors involved are:

Missed Payments

The whole process of foreclosure starts when a mortgagor defaults in making timely payment on their mortgage. This may be due to different factors; medical challenges and bills, unemployment, divorce etc. Talking to the lender or creditor at this time is crucial so that options that could make you keep your home are considered. A foreclosure process usually is at a cost to the creditor and they would prefer to avoid it.

Another reason a borrower might not pay may be due to the fact that the amount being paid for the mortgage is greater than the value of the property so the individual might intentionally stop paying.

Public Notice

Usually when a mortgagor has missed payments for a period of three to six months, the creditor places a notice with the County Recorder’s Office which indicates that the homeowner has defaulted on their mortgage.

Depending on the state, this notice could be referred to as Notice of Default (NOD) or a lis pendens (suit pending). Also, a lender may need to place this notice on the property. This makes the borrower aware that they are at risk of having their home foreclosed.

Pre-foreclosure

After the notice of default, the homeowner is given a grace period. This is known as a pre-foreclosure and can last between 30 to 120 days. This sort of allows the borrower to work out things either by paying outstanding debt or trying to sell the home via a short sale. You can read all about shorts sale here: https://en.wikipedia.org/wiki/Short_sale_(real_estate).

Auction

If the borrower was not able to pay off the outstanding payments or to effect a short sale by the end of the grace period, the lender or its trustee will set a date on which the property will be sold during a foreclosure auction or trustee sale. Again, a notice called the Notice of Trustee’s sale (NTS) is lodged at the County Recorder’s Office and the borrower is notified. This will also be posted on the home and in a newspaper.

Up to this stage, the homeowner has a right of redemption in most states. This means they can stop the process of foreclosure if they can come up with the outstanding payments. If not, the house is sold to the highest bidder in cash.

A final option for the mortgagor is agreeing to a deed in lieu of foreclosure with the lender. This helps to free the individual from all debts on the home and it is of less consequence on their credit worthiness than going through with foreclosure.

Post-foreclosure

Supposing there was no purchase of the property during the auction by a third party, the lender takes ownership of the home and it becomes a bank-owned property or real estate owned (REO). It can then be sold off in the open market by having it listed by real estate agents or by the lender selling it off at a liquidation auction.

Avoiding a Foreclosure

The good news is that a foreclosure can be cancelled, delayed or if you must go through it, you can keep your head above the water by keeping your finances and dignity instead of being embarrassed. Some things to do include the following:

Talking to Your lender

One of the first things to do when there is a difficulty meeting your payment obligations is to reach out to your mortgagee as early as possible. As stated earlier, the lender wants to avoid foreclosure as much as possible as it is expensive and time consuming so they will be open to alternatives. You may learn more in this article.

These alternatives may involve refinancing where you are offered a new loan including new rates and terms. It could also be a repayment plan that works for you or forbearance where the lender temporarily suspends your payments for a specified period. You may also get a loan modification which will allow you to manage how you make your payments.

Counseling

If the above step of talking to your creditor does not yield a desirable outcome, you may need to talk to a counsellor approved by the Department of Housing and Urban Development (HUD). They will advise you on what to do and can help contact your mortgagee so that a solution can be found. Most of these counselling is free so beware of scammers.

You can also reach out to experienced property lawyers or attorneys. You can find top quality property attorneys at www.finelawoffices.com. They will help you fight your case and either cancel the process or get you favorable terms.

Conclusion

When in danger of a foreclosure, educating yourself to know the options and alternatives available to you is necessary. Equally important is time. Do not delay to reach out for help as soon as you have difficulty making your payments. This might be the difference between saving your home and losing it.