Most of the time, people can’t buy a house or property using their own money. So they actually go to some lending institutions such as a bank to get a loan and own the house of their dream. A couple of months they’ll start paying home mortgage including high-interest rates. There are those who can’t pay their mortgages on time for various reasons. A couple more months of missing the payment and the lending institution takes control of the property. This legal process is commonly known as foreclosure.
Foreclosure of property such as a house does not happen overnight. Banks usually follow a series of steps before resorting to the legal process of taking over the said property. The institution now has the authority to evict the homeowner, even sell the house after the homeowner is unable to pay the full amount plus the interest. What really happens during the foreclosure process? Brandon Cornett walks us through the foreclosure process in his article at Home Buying Institute.
What Happens During the Foreclosure Process?
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The foreclosure process varies from one state to the next. The main difference has to do with the legal documents used when transferring real estate. Some states use mortgages for this purpose, while others use deeds of trust. Generally speaking, states that use mortgages have a judicial foreclosure process, and the states that use deeds have a non-judicial process.
In a judicial foreclosure, the bank or lender must go through the courts before they can foreclose on the home. As you would imagine, this makes the entire process take longer. (It also slows down housing recovery by perpetuating a backlog of distressed properties, but that’s another article entirely.)
In the non-judicial foreclosure process, the bank or lender does not have to go through the courts. All they have to do is send a letter of default to the homeowners. In most cases, they have to file a Notice of Default with the county as well. But the courts don’t actually have to review the case. So the process moves more quickly than it does in the judicial states — generally speaking.
Which foreclosure process do you have in your state? You’ll have to look it up. It would be a beast of a task for me to explain the procedures for every state in this article. Instead, I’ll focus on the steps that are similar across the board. You’ll have to research the unique procedures for your particular state, and it’s important that you do. Your first task is to determine whether you live in a judicial or non-judicial state, from a foreclosure standpoint.
Basic Steps in the Foreclosure Process
As mentioned earlier, the process will vary from state to state. Sometimes it varies slightly from one county to the next, within the same state. But the basic steps are the same. And those are the steps will examine below. This will give you a basic understanding of how the foreclosure process works. After reading this lesson, you can continue your research to learn exactly how it works in your county and state. Start with the basics, and then move on to the specifics.
Step 1 – The Homeowner Misses Payments
The whole process begins when a homeowner falls behind on the mortgage payments. Now, when this happens, a foreclosure is not necessarily inevitable. This is one of the key takeaway points for this article. Some homeowners temporarily fall behind on their mortgage payments, but then they get caught up again.
Banks realize this, so they offer ways for borrowers to get back on track. For instance, they might allow the homeowner to make a single lump-sum payment to account for the missed payments. This is known as reinstatement. They may also take the total amount owed in back payments and spread them out in a payment plan, to lessen the financial burden on the homeowner. This is referred to as forbearance. Most lenders will offer one or both of these strategies, as a way to avoid the foreclosure process entirely.
Here’s the key point to take away from this step: Just because you’ve missed a single payment (or even a handful) doesn’t mean you’re bound for the foreclosure process. There are ways to right the ship. If you are early on in the process, and you haven’t spoken to your lender or “loan servicer” yet, now is the time to do it. If you have only suffered a temporary financial setback, explain the situation to them and ask what options you have.
Of course, there are times when the homeowner’s financial problems are more permanent in nature. In these cases, the foreclosure process will move forward and they will eventually lose the home. Here’s how it happens…
Step 2 – The Lender Sends Notices
When you fall behind on your mortgage payments, you’ll eventually receive a letter from your lender. This is your initial notice of default. (By the way, “default” is a legal term that means you have failed to meet a financial obligation.) They might send one letter or several. They may even call you to give the notice. But there will be at least one letter, at a minimum. This letter marks the first official step in the foreclosure process. It might be sent anywhere from 30 – 60 days after a payment deadline has lapsed. It varies from one lender to the next.
Keep in mind that most lenders want to avoid the foreclosure process, if possible. They are in the business of lending money, not managing and selling real estate. In most cases, they can make more money (and avoid a lot of hassle) by keeping the homeowner in the home. Are your financial problems only temporary? If so, you could still save your home. The lender’s notice of default is not the final nail in the coffin. Contact their “loss mitigation” department and explain your situation. Tell them you are willing to bring the loan current again. Click here to read the rest of this post…
As mentioned earlier, the foreclosure process does not happen overnight. As a matter of fact, it would take a couple of months, even a couple of years before banks or other lending institutions start sending notice, either through letters, calls or a combination of both. If you plan on to continue paying on your mortgage, contact them and explain the moment you receive the very first notice. But how long does foreclosure take?
National Bankruptcy Forum gives a detailed explanation on how long does the entire foreclosure process would take. Read the article below to find out more.
How Long Does Foreclosure Take?
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If you’re running into trouble making your mortgage payments, you may be wondering: How long does it take for a bank to foreclose on your home? Most lenders will not begin foreclosure proceedings until a borrower is 3-6 months behind on their payments. Although missing a single payment is technically a default under the terms of most loan documents, lenders have neither the time nor the desire to foreclose on borrowers who have missed one payment. In most cases, lenders start with letters and phone calls and don’t actually begin the foreclosure process until the borrower is fairly deep in arrears.
This post deals with the timing of a foreclosure once your lender has started the process and has instituted a foreclosure action against your property.
The Foreclosure Process: Two Types of Jurisdictions
The speed with which a bank can foreclose on a borrower varies based on state law. However, there are basically two different types of jurisdictions for foreclosure purposes: power of sale jurisdictions and judicial foreclosure jurisdictions.
In over half the states, the prevailing method of foreclosure is non-judicial power of sale foreclosure. What does this mean? If you have executed a deed of trust with your mortgage lender, your deed is held by a trustee pending full payment of your note. In the event you fail to make your mortgage payments, the trustee has authority to sell your home at auction.
Power of sale foreclosure can occur much more quickly than judicial foreclosure because the trustee vested with the power of sale does not need court oversight to sell the property. The trustee will give notice of a public foreclosure sale and then sell the distressed property to the highest bidder. A court will usually not oversee the process.
We’ll go over a little bit more about both types below.
When does foreclosure start in a power of sale jurisdiction?
Power of sale foreclosure moves quickly. Upon default, the trustee is permitted to go through with the foreclosure sale after a relatively short notice period (usually two to three months from the date foreclosure proceedings are instituted).
If you live in a power of sale jurisdiction, your mortgage lender can usually complete the foreclosure process in two to three months.
Today, the following states plus the District of Columbia allow foreclosure by power of sale:
It is important to point out that, while a power of sale mortgage can theoretically be foreclosed on quickly, the incredible back log of foreclosures in many states can delay the process significantly. Lenders simply don’t have the resources to foreclose on all the delinquent borrowers. In some cases, sloppy record-keeping casts real doubt on the lender’s actual legal right to foreclose; in others, lenders don’t want property and are refusing to take it back.
As a result, from start to finish, foreclosure can often take a year or more.
Foreclosure Timeline: Judicial Foreclosure
By contrast, judicial foreclosure is available in every state and is the required method of foreclosure in many states. Judicial foreclosure jurisdictions require a court to oversee the foreclosure process. A foreclosing lender files a complaint just like in a normal civil lawsuit. If the borrower decides to put up a fight and litigate the matter, judicial foreclosure proceedings can take a year or more to be completed.
The requirement that the lender foreclose through the court system slows down the process considerably and the current foreclosure log jam buys borrowers even more time. Like power of sale jurisdictions, all interested parties must receive notice of the foreclosure sale. Read more here…
As mentioned earlier, the entire foreclosure process is not done overnight. It would take a couple of months, even years before the lending institution acts on the failure to pay the mortgage on time. It is not yet the end of the world though, as you can stop your property from being foreclosed by settling your balance as the first step.
There is a saying that prevention is better than cure, and this also applies to foreclosure. You can definitely avoid it from happening if you follow these tips from FindLaw.
10 Tips to Avoid Foreclosure
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If you fail to make your home mortgage payments, foreclosure may occur. Foreclosure is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe your lender an additional amount. Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. Below are some tips on avoiding foreclosure.
1. Don’t ignore the problem.
The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
2. Contact your lender as soon as you realize that you have a problem.
Lenders do not want your house. They have options to help borrowers through difficult financial times.
3. Open and respond to all mail from your lender.
The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
4. Know your mortgage rights.
Find your loan documents and read them so you know what your lender may do if you can’t make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.
5. Understand foreclosure prevention options.
Valuable information about foreclosure prevention (also called loss mitigation) options can be found on the internet at www.fha.gov/foreclosure/index.cfm.
6. Contact a HUD-approved housing counselor.
The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339.
Foreclosure of a property is among the hardest life chapters anyone could experience since you already invested money, time and effort for your house to be yours, but major circumstances prevent you from paying the mortgage. You can stop the foreclosure or completely abandon the property, that’s your call.
There are lots of great deals in the list of foreclosed properties, but you have to be knowledgeable in checking a property whether for your own house or for investment. If you need some help with foreclosed properties, we at Dependable Homebuyers can help you find the best deals in foreclosed property listings. Visit us on https://www.dependablehomebuyers.com to learn more.
