How Does a Property Become Foreclosed?

Starting the Forclosure Process

Your lending institution actually starts the foreclosure process when they send out the first letter stating your payment is late. The payment is considered late the first day after it is due, even though you have a grace period of up to 15 days. If you don't respond to the letter or make a payment on the second month, the lender will send another letter. Usually it gives you a two-week period to respond to that letter, suring which it will help you work out an arrangement to get caught up if at all possible. Remember, the bank really doesn't want your home and it will do what it can to help you keep it. After this deadline, the bank sends out a Demand letter. The Demand letter gives you 30 days to pay all the payments and late fees and bring your mortgage current. At this point, some banks will not accept a partial payment, but you must call the bank and try to make arrangements if you feel you can get caught up within a reasonable amount of time.

Notice of Acceleration and Default

If the bank has not had any response from you to its previous letters, it will send you a Notice of Acceleration. There is a clause in your mortgage that states if you cease to make your payments, it has the right to accelerate the mortgage or call it due. Now, the entire amount of your mortgage is due, not just the late payments. It will then be passed on to attorneys to file a Notice of Default in the county court house where the property is located. You will have 20 days to respond to this notice with the court. By responding, you could give yourself a little more time. If you inform the court that you are trying to sell the property or you are working with an investor to take over the property, the court may give you another 30 days to try to work it out. If you do not respond within the 20 days, the court will set a date for the foreclosure sale.

The Foreclosure Sale

Once the date is set, it will be advertised in the local newspaper. The bank will send a representative and anyone can go and bid on the property. In most cases the bank gets the property back, but sometimes someone will outbid the mortgage and the property is sold to that person. All states differ slightly when it comes to the foreclosure process, but usually all that it affects is the time it takes to go to sale. In some states, it may take a year. In others, only two or three months from the date of the Default notice. Some states have a right of redemption for the home owner also. It can range from before the sale to two weeks after the sale. This gives the homeowner a chance to buy back the property, but he must pay all court and legal fees. Other states give immediate possession to the highest bidder.