The Process of Foreclosure Litigation

Basics

Foreclosure is the legal process by which someone loses his mortgaged house or other property due to failure to make the agreed-upon loan payments. When a mortgage is taken out to secure funds to buy real estate, it is backed by the collateral of the property. The agreement is if the loan is not paid, the finance company has the right to foreclose upon the house and sell it at auction to recoup the company's losses. There are several steps that must happen for a legally successful foreclosure.

Notice of Default

Once it becomes clear that loan payments cannot be made, the lender will issue a Notice of Default (NOD) to the homeowner as well as the local courthouse. The policy on when this happens varies depending on the finance company or bank issuing the mortgage loan. Some companies will record a NOD after one or two missed payments, but others wait as long as 6 months to start this action.

Notice of Sale

The homeowner usually has about 3 months to stop foreclosure by making up the missed payments, becoming current on any upcoming payments and paying any fees and penalties that are agreed upon in the contract. If this does not happen, then the lender issues a Notice of Sale (NOS) to the homeowner and the local courthouse, setting a foreclosure auction date. This information may also be published in the local newspaper to notify people that the home is becoming available for sale. The defaulted mortgage borrower then has up until about a week before the auction to try one last time to make up the loan payments or leave her residence.

Most foreclosed properties are sold at auction, usually for far less than the actual value of the defaulted mortgage loan. This is because many mortgages have more money owed than the value of the property itself.

Eviction Process

If the homeowner refuses to leave the property by the auction date, the lender will get a representative of the local sheriff's department to come by and enforce an eviction order, also known as unlawful detainer. Continued refusal to vacate a foreclosed property can lead to criminal penalties for the defaulted borrower.