The U.S. Department of Housing and Urban Development offers first-time home buyers and current homeowners the opportunity to take out home loans at reduced mortgage rates through the FHA loan program. The Federal Housing Administration insures these mortgages, which makes it possible for banks and lenders to recoup their losses in the event of foreclosures. Once a homeowner defaults on his mortgage contract, foreclosure proceedings begin.
FHA loan terms require homebuyers to purchase mortgage insurance as a condition of the sale. Mortgage insurance protects banks and lenders in the event of loan default and also reduces their risks when approving a loan. In effect, the insurance provision makes it possible for lenders to offer loans at lower rates than those offered with conventional mortgage loans. So when a homeowner defaults, lenders have the option of recouping their losses from the government. Default status occurs once a homeowner misses three mortgage payments or 90 days of missed payments, at which point the foreclosure process begins.
Foreclosure proceedings for FHA mortgage loans can vary depending on the laws within a particular state. Lenders typically send out a "Demand Letter" notification once a homeowner reaches the 90-day mark for missed mortgage payments. At this point, homeowners have 30 days to make payment arrangements with the lender. Once homeowners reach the 120-day mark in terms of missed mortgage payments, banks and lenders issue a final notification and begin the process of auctioning off the property. The local sheriff's office or public trustee offices make the arrangement for a property auction.
Throughout the FHA foreclosure process, homeowners retain ownership rights up until the point where a property is sold at auction or the bank or lender reclaims official ownership. Depending on the state, foreclosure proceedings can take anywhere from two months to a year to complete. Once a property sale is final, homeowners must vacate the premises within a certain period of time or risk being evicted by a sheriff. Some state have laws that make it possible for homeowners to redeem or reclaim their property even after a public auction sale has taken place. These states allow for a redemption period, which gives homeowners a certain amount of time to make financial arrangements with the lender.
Types of Proceedings
FHA foreclosure proceedings can occur in one of three ways. depending on state law and whether the terms of a mortgage contract include a foreclosure clause. Judicial foreclosures use the standard 90-day Demand Letter notification and 120-day final notification process. Judicial foreclosures occur in all 50 states. A "strict foreclosure" process occurs when the mortgage company files a lawsuit against the homeowner for nonpayment. With a "strict foreclosure," properties revert back to the mortgage holder in cases where the homeowner is unable to pay. A "power of sale" foreclosure process occurs when the mortgage company actually sells off the property at auction rather than having the sheriff or public trustees office handle the sale.
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