A better understanding of the foreclosure process
What is a foreclosure?
Foreclosure is a term used mostly in real estate when a borrower or a homeowner cannot or won't pay the required mortgage anymore. It is a legal process that starts when borrowers lose all rights to the property because they failed to pay the outstanding debts to the creditor short selling the property and foreclosure auction. The lender would own the property if it did not get sold.
The borrower fails to make payments.
The first stage is when borrowers cannot make payments on time and for a prolonged time, usually due to unemployment or illnesses. However, there are still some ways to avoid foreclosure by negotiating with your creditor.
One way is to ask for forbearance. Forbearance allows a borrower to delay or postpone a mortgage payment. The creditor can grant this, provided that the borrower has a clean record and has been responsible for his payments. For example, the borrower has been stable and employed for a long time, and he never missed a payment, but due to unforeseeable instances, he got laid-off in his job. The creditor might consider granting forbearance, primarily due to his situation. Also, foreclosure talks about a long and expensive process that is why some loan owners give forbearances to avoid this.
Sometimes, a borrower stops paying the mortgage because it is not practical if the mortgage is more expensive than its intrinsic value. Sometimes, the property is just too much to maintain.
Posting of the notice of default
It may be different from one state to another, but usually, in a span of three to six months of missed payments, the county recorder's office will consider this a mortgage default. The lender will place a notice on the front door to make everyone aware that the borrower might lose the property if they don't pay soon enough.
The pre-foreclosure grace period
After the lender posts the notice of default, the borrower will be given around three to four months to pay the outstanding debt or make a short sale arrangement with the lender. If the borrower pays, then the foreclosure gets canceled, but if not, the foreclosure continues.
The foreclosure auction
If the borrower still did not pay at the deadline, the lender or its trustee can put the property for a foreclosure auction. It will go to the county recorder's office. They will post another notice at the borrower's property, and this information will be in the newspapers.
A right of redemption allows a borrower to stop a foreclosure by paying the outstanding debt before another person buys the property.
The deed in lieu of foreclosure is the agreement between the lender and the borrower to take back the property. However, the creditor can give the property to the highest bidder, who will pay in cash, or else the bank can repurchase it at the auction.
Finally, the post-foreclosure
The property turns to a bank-owned or real estate owned if it does not
get sold at the auction. Disposition of these properties can be through either
open market enlistments of real estate agents or liquidation auctions.
