Bank Steps to Foreclosures
When an individual purchases a home, he will usually take out a loan (called a mortgage) in order to cover the purchase price of the property. The borrower will make monthly payments to a bank lender over a period of 15 or 30 years, until the mortgage has been paid off. If the borrower finds himself unable to meet these monthly loan payments, the bank will take steps to reclaim the house and recoup the loan amount in a process known as foreclosure. By law, lenders in the United States must follow a number of steps in order to reclaim the property.
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Warning
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If a borrower does not make a mortgage payment 30 days after payment is due, the bank will send a letter, known as a notice of default, which asks the borrower why she has not made payment. This letter may specify what further actions the lending institution will take if it does not receive payments on time.
Negotiation
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During this late payment period, homeowners have the opportunity to negotiate with the bank and to try to become current with their monthly payments. Some lenders offer loan modification payments that can reduce monthly mortgage payments or the principal amount of the loan.
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Acceleration
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If the bank fails to convince the borrower to become current on his payments or the borrower is unable to pay his mortgage after three months, the lender will take a more drastic action. A notice of acceleration will be sent to the borrower, which requires him to pay the loan in full. By this point, the borrower cannot usually seek alternative arrangements with the lending institution, as the lender has already hired attorneys and has made a good faith effort to exhaust all remedies. If the borrower cannot pay off the loan within 30 days of this notice, the bank will go to court to obtain a judgment against the borrower.
Listing
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After receiving a court judgment to sell the home, the bank will send a notice of sale to the homeowner, which states when and where the property will be sold. Most states require the bank to list the property in a local newspaper for up to a month. The property will usually be sold within 30 days of the notice of sale. The sale usually takes place at a county or city courthouse.
Sale
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At the sale, a private investor may bid on the property. If this doesn't occur, the bank will bid on the property and the institution will now hold legal ownership of the property in order to satisfy the loan. In states with redemption periods, the borrower may buy back the property even after it has sold, as long as she can pay for the property in full.
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