Foreclosure occurs when a lender takes possession of a home because the homeowner defaults on their mortgage payments. To take possession of the home, the loan or mortgage must be secured by the home. Once foreclosure is complete, the home becomes the property of the lender.
Generally, before initiating foreclosure proceedings, a lender must send the homeowner a notice of default. This is usually done after 3 months of non-payment. The notice usually states that the homeowner has been delinquent in his or her payments, and states that the lender has the ability to repossess the home. The lender may also place a foreclosure lien on the home.
If the homeowner continues to not make payments, or establish a new agreement with the lender, the lender will initiate a foreclosure proceeding. In these proceedings, all the lender has to prove is the existence of a mortgage, and that the homeowner is delinquent in payments.
Once the house is foreclosed, the lender will usually sell it at auction to try to recoup their losses. If the house fetches less than the lender is owed, the homeowner may have to pay the difference, called a deficiency judgment.
While the lender has a legal right to seek repayment of a loan, the homeowner still has some protections. These protections include:
- Equity of redemption: The homeowner has a right to pay off the balance of the loan, if possible, before the home is foreclosed.
- Public notice of foreclosure sale: The public must be notified that the house is being auctioned off. This increases the likely number of bidders, which increases the price that the home is likely to fetch, making a large deficiency judgment less likely.
- Homeowner’s right to bid at the foreclosure sale: This gives the homeowner one last chance to buy back the home from the lender.
- Judicial supervision of price: If the lender bids low at a foreclosure sale, then resells at a very high price, the homeowner may be entitled to a share of the excess profits.
- Statutory right of redemption: This right of redemption applies after the house has already been foreclosed. It gives the homeowner a limited period of time to pay off the debt after foreclosure has become final.
Foreclosure can be a daunting and emotional process for many people. If you are facing foreclosure, a real estate attorney can help you evaluate your options and ensure that your rights are enforced throughout the process.