What Happens When They Foreclose on Your Home?

Who Conducts the Foreclosure and Why?

Foreclosures are conducted by mortgage lenders. The most common lender types are banks or credit unions, but individuals may also be considered a lender in a land-contract situation. The lender is entitled to "foreclose" on the home if the borrower/homeowner defaults on their mortgage. After the lender takes the home through a foreclosure, they will resell it at a foreclosure sale. The point, as far as the lender is concerned, is to make enough money to compensate them for any outstanding principal. Before a lender can foreclose on a home, and evict the homeowner or tenants, there are certain rules they must follow. All of this is very carefully regulated by both Federal and State law.

Steps Leading Up to the Foreclosure

Before a lender tries to bring a foreclosure action against the borrower they must first notify the borrower that they are delinquent in making their mortgage payments. A lender usually won't even attempt a foreclosure action unless the borrower is at least several months behind on making their payments. The lender will first attempt to contact the borrower and attempt to get them current on the mortgage. Lenders are often also willing to negotiate new terms before foreclosure. If, however, it becomes apparent that the borrower has no choice but to default on the mortgage, then the lender will give them a 30 day notice prior to beginning a foreclosure action.

Major Differences Between Jurisdictions

Depending on whether your state follows a "Title" or "Lien" theory regarding mortgages, the rules will be different. The "Title" theory holds that the lender actually owns the home until the borrower pays the entire mortgage off entirely. In a "Title" theory state it is easier for a lender to bring a foreclosure action because they are the legal owner of the home. The "Lien" theory states say that the borrower is the legal owner of the home, and that the lender simply has a lien against the home. In a "Lien" theory state your lender will have to take you to court formally before bringing a foreclosure action. In order to determine what type of jurisdiction you're in it is absolutely crucial that you consult a legal professional for assistance.

The Foreclosure Process

Once the foreclosure process has begun there will be a period of time, called the "equity of redemption period," where you'll have an opportunity to redeem the home by paying your mortgage up to date. This period lasts for about 2 months in most jurisdictions, but again this can vary depending on where you live. After that time period ends the lender can legally sell your home in a foreclosure sale, which is often an auction. If no one else shows up to the auction then the bank will often elect to buy the house, but they have a duty to get at least a "fair price" for the home. If the house sells for more money than is owed on the mortgage, then the lender will have to pay the borrower that excess. If the borrower fails to leave voluntarily, then the lender will bring an eviction action. The lender can do so before or after they foreclose on the home.

After They Foreclose

After the foreclosure sale, most jurisdictions have a statutory period of redemption. Some last as as long as 6 months. During this time, even if the house has been sold in a foreclosure auction to someone else, you have the opportunity to pay the mortgage up to date and get the house back. Once this period of time has passed, though, there is no right of redemption. In other words, you no longer can get the house back even if you were able to pay the entire mortgage off in one lump sum.

References

• National Association of Realtors

Resources

• Steps to Avoid Foreclosure