The Foreclosure Process: Understanding Foreclosures

Understanding Foreclosures Proceedings 

foreclosureAs a homeowner, understanding foreclosures is important. The state of our economy has stabilized resulting in an improving housing market nationwide.  Home prices are keeping pace with the recent upturn.  You still may find yourself falling behind on your mortgage payments.  A Foreclosure is a final action a mortgage lender pursues to recover the losses on the loan due to lack of payments. A key to understanding foreclosures is that missing payments will impact your credit score.  In the unfortunate case of potentially losing your home, you need to familiarize yourself with the foreclosure process. Understand the individual steps of the sequence as well as the available options.  It’s important that you know and understand the potential consequences of each option; as each one has its advantages and disadvantages.

Understanding the Foreclosure Process

The foreclosure process comprises several stages during which the homeowner has the possibility to bring the loan current and avoid foreclosure. Once the borrower misses a payment he or she will be considered delinquent on the loan. Most mortgage lenders consider a payment to be late after the 15th day of the month in which it is due. The mortgage lender will send a late payment notice to the borrower. At this stage, the written contract with the lender has been broken and in case the borrower does not become current the lender will send a “demand” letter by certified mail usually between day 45 and day 60. The letter notifies the borrower that he/she is late in payments and that mortgage contract has been breached. The loan company will also inform the property owner that they will pursue legal action if the debt is not taken care of. It is best to contact your mortgage company immediately and work with them to make up the payments or find a different solution.

Understanding Foreclosures - Notice of Default

The foreclosure process actually begins when the trustee records a Notice of Default (NOD). This filing indicates:
  • The name and address of the borrowers, lender, and trustee
  • The property’s location
  • The type of agreement and full details of how the agreement was breached
  • The action required to cure the default
  • The date by which the Action needs to be taken in order to remedy the situation and comply with the agreement
  • Default must be cured
  • That the property might be seized if the borrower does not comply with the agreement by the deadline.
Usually, mortgage lenders wait to record the NOD until the borrower is at least 90 days behind in making mortgage payments. You should consider a "work-out agreement before the Notice of Default is filed, as afterward your options are limited. The procedure and the documents you will receive at this point depend on State foreclosure laws. You could receive both a Notice of Default and a Notice of Sale as part of the nonjudicial foreclosure process of your state. You could receive the following:
  • a Notice of Default followed by a Notice of Sale
  • a combined Notice of Default and Sale
  • a Notice of Sale stating that the property will be sold and the proposed date, or
  • a notice by publication in a newspaper and posting on the property.

Understanding Foreclosures - The final chapter

In case you do not manage to reinstate the loan by the end of the pre-foreclosure period, the lender will sell the property at a public auction. This method offers the lender a quick way to liquidate the property.  The minimum bid at foreclosure auction is usually set equal to the amount owed on the property plus the fees and any other costs that the lending company might have had. If you are facing financial difficulties, we strongly encourage you to address the issue as soon as possible in order to assess your financial situation, explore your options and avoid foreclosure.
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