Explain the Foreclosure Process
Foreclosure is a legal process that a lender uses to seize possession of a home. Foreclosures can be complex and time-consuming. Lenders typically only go into foreclosure when they believe that there is no chance of the loan being repaid by the borrower. If possible, the lender restructures the loan or reaches an alternative agreement like a short sale. But if the borrower is unresponsive, the lender will begin trying to take the property as soon as it can to recover losses.
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Defaulting
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A foreclosure begins with a default. A mortgage account is put into a default status when the lender has demanded payment for an extended period of time but has not received it. Typically a mortgage goes into default after 30 to 90 days of late payments, with rules changing based on lender standards and state regulations. A defaulted mortgage is very damaging to credit, and lenders often move on quickly to a foreclosure after a default. They also tend to accelerate mortgages, or demand complete repayment of the principal in order to redeem the loan.
Foreclosure Notices
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Foreclosures are accompanied by frequent notices. Lenders will issue notices regarding late payments and extra fees, then notices about defaults and the start of the foreclosure process. When the time comes to sell the house, the lender or court will also issue a foreclosure sale notice. At some point the homeowner will also receive an eviction notice with a required move-out date.
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Judicial or Nonjudicial
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Foreclosures can be either judicial or nonjudicial, depending on the loan or state. In a judicial foreclosure the lender must file the foreclosure at a court and the court must rule in favor of the lender, granting an auction or possession of the house. A nonjudicial foreclosure occurs when an escrow company holds the deed to the house and can sell the property itself and give the proceeds to the lender. Nonjudicial foreclosures tend to be faster than those based in a court, but judicial foreclosures give homeowners more opportunity to contest the process.
Foreclosure Sale
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The foreclosure ends with the foreclosure sale. This typically involves an auction where the court or escrow company will try to sell the foreclosure to the highest bidder. If there are no bidders, then possession of the property automatically reverts to the lender, which tries to sell the house on the open market. Some states also have redemption laws that allow homeowners a short window after the sale in which to pay off the mortgage and reclaim the home.
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