Foreclosure is a legal process that allows a lender to take back a property when a borrower stops making mortgage payments. It can be an expensive and damaging process for the borrower.
How does foreclosure happen?
How does it happen?
When a homeowner defaults on their mortgage, the lender can start the foreclosure process.
The lender may send a notice demanding payment.
If the homeowner doesn't respond or make a payment, the lender may auction off the property.
Types of foreclosure
Judicial foreclosure: The lender files a lawsuit with the court.
Power of sale foreclosure: Also known as statutory foreclosure, the lender sends notices demanding payment and then auctions off the property.
The foreclosure process is a legal action that takes place when a lender takes control of a property because a borrower has missed mortgage payments. The process can range in time from 3-12 months.
Steps in the foreclosure process
Initial Delinquency: The lender sends a notice of default to the borrower. 90 Day Delinquency.
Notice Of Default: After 90 days of delinquency, the lender no longer accepts partial payments.
Pre-Foreclosure: The borrower is served with a summons and complaint. "3-6 months"
Foreclosure: A lawsuit is filed against the burrower in an attempt to collect the debt. "4-6 months"
Sale Date: The lender sets an auction date. "4-12 months"
Eviction: The ex-burrower is forced to surrender the estate.
Foreclosure Options include strict foreclosure, short sale, forbearance, loan modification refinancing, repayment plan, moratoriums and bankruptcy.
Strict Foreclosure
A judge orders the borrower to pay the mortgage balance by a set date.
If the borrower doesn't pay, the lender takes ownership of the home.
Short Sale
The homeowner sells the home for less than the mortgage balance.
This can help avoid foreclosure. However, the borrower would lose the equity in the home. And liens or fees will roll to the borrower's credit.
Traditional Forbearance
The homeowner is placed on a repayment plan.
Must not be in an active foreclosure to be eligible.
This can help prevent foreclosure and relieve financial pressure.
Loan Modification
Any missed mortgage payments would be placed on the rear of the loan. Bringing the borrower current and providing a fresh start.
This can be used to stop a foreclosure.
Moratorium
This is like a loan modification, only without the trial payments.
Deed In Leu Of Foreclosure
The homeowner surrenders the home to the bank.
Must not be in an active foreclosure to be eligible.
Bankruptcy
The homeowner eliminates debts or establishes a repayment plan.
Must be able to pay the mortgage payment and the bankruptcy payment.
This can help save the property.
Temporary fix. It only postpones the foreclosure sale date. In a few months, the mortgage company accelerates proceedings and restarts the foreclosure process.
