Jen Jones
Unfortunately foreclosure is a word that seems to be heard more and more often as numerous people are falling behind on payments and losing their homes. In order to prevent foreclosure from happening to you, it is important to fully understand what causes foreclosure, how you can get out of it, and what will happen in the worst case scenario.
Foreclosure
If you get too far behind on payments on your loan, you may run the risk of foreclosure. When signing for your loan you are using your property as a security, allowing the lender to repossess and sell your property to satisfy the debt. Through the foreclosure process, the title of the property is passed on to a third party who may purchase the property at a foreclosure auction.
Foreclosure Process Stage 1: Missed Payments
In the foreclosure process, the first stage regards the missed payments on the mortgage. Typically if you only fall one month behind, you will not be at risk for foreclosure. Once you fall 90 days behind on your mortgage, your mortgage lender can legally instigate the foreclosure process.
It is right after this time in which it is the best time to rework your finances, make an effort to work out a compromise with your lender, or put your home on the market. The fastest way to put your home on the real estate market and get it sold quickly is to advertise it as a for-sale-by-owner home and sell it yourself, saving money from hiring a real estate agent. There are numerous resources available to aid in the process of selling your home to repay the missed payments.
Foreclosure Process Stage 2: Pre-Foreclosure
With the foreclosure process legally in full force, the lender will mail the owner a public notice informing them that they have three months from that point to either sell the house or come up with the cash owed. The title of the notice can be referred to either as a Notice of Default or as a Lis Pendens. This portion of the process can vary from state to state as some state laws require the notice to be posted on your front door.
Foreclosure Process Stage 3: Auction
Once the three month period passes, the lender has legal rights to set a date for the home to be sold at a foreclosure auction, called a Trustee Sale. This auction is recorded with the County Recorder’s Office, posted on the property’s door, and published weekly in the local newspaper. More recently with the increased usage of the Internet, foreclosure listings can also be found on a variety of real estate websites.
The auction takes place either in the trustee’s office or on the steps of the county courthouse. The opening bid is set by the foreclosing lender and typically is equal to the loan balance, the interest accumulated, and any additional associated fees. The highest bidder on the property must pay in cash and generally has 24 hours to pay the complete sum. Although some states will allow you to come up with the cash needed and stop the foreclosure process, not all states will allow this to occur.
Foreclosure Process Stage 4: Post-Foreclosure
In the event that a third-party did not purchase the property at the Trustee Sale, the foreclosure process enters a post-foreclosure stage. The lender now has ownership of the property and it officially becomes a bank-owned property, or a Real Estate Owned (REO) property. This often occurs when many of the properties up for sale at the auctions are worth less than the amount owed to the lender. The REOs are then listed with local real estate agents to be sold at liquidation auctions held at either an auction house or at the property.
The Government and Foreclosures
In 2008, the government passed a foreclosure bill which would provide federal loans and grants to the cities hit by the housing crisis. This foreclosure bill allows the cities to purchase and remodel foreclosed properties. The cities would be selected based on foreclosure rates and the loans would focus on those who have lost their homes to foreclosure. When the government seizes real estate, they can then have a government foreclosure sale.
Foreclosure is a process happening to many homeowners, but it is a process which can be avoidable as long as you keep up-to-date on your payments. In the event that your property is being foreclosed, do all that you can to stop the process before the auction officially begins. You may also want to look into FHA mortgage loans.