Steps in Foreclosing
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Default
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Foreclosure is the process in which a lender takes possession, or forces the sale, of collateral property because of default on a mortgage agreement. If a homeowner misses a mortgage payment, he is delinquent on his mortgage. He is likely to receive a letters informing him of the missed payment and applicable late charges, and might be the subject of collection attempts by telephone. If possible, the borrower and lender can use this opportunity to reach an agreement to cure the default and prevent foreclosure. By the time the homeowner is delinquent on two or three payments, the lender typically moves on to the next steps in foreclosing.
Notice
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Most states make foreclosure on a mortgage a judicial process. This means the formal Notice of Default must be filed with the recorder of the local county court. Once this takes place, the lender has a limited period, up to three months in some cases, to get current with her mortgage payments. The lender can file a Notice of Acceleration (required in some states), which informs the borrower of the lender's intention to repossess and sell the property. During this period, renegotiation of the mortgage can still occur to prevent foreclosure, but with each passing month, the borrower gets further behind and resolution other than foreclosure becomes less likely. The borrower can also arrange to sell the home on her own, an outcome that tends to generate a higher selling price than foreclosure auction.
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Sale
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The lender is required to provide the delinquent borrower with a Notice of Sale once the property has been scheduled for auction. The period between the notice and the actual sale is called preforeclosure, and is the absolutely last chance for the borrower to cure the mortgage default or effectuate his own sale. The borrower can choose to file bankruptcy, which can prevent foreclosure, but which has other consequences. The borrower must vacate the property by the date of sale, at which point he no longer has any legal claim to the property. If the funds generated by the foreclosure sale do not satisfy the outstanding mortgage, plus other fees, the borrower can still be left with unpaid debts.
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References
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- Photo Credit Brendel (CC-By-SA 3.0)
