Foreclosure by sale is a process in which a property is sold at a public auction to satisfy the home’s debt in whole or in part. A foreclosure occurs when a property owner is behind on making payments on the mortgage, leading to the property being seized or sold.
The foreclosure process varies from state to state, but the process is generally very straightforward. The foreclosure process typically lasts up to 6 months. The process depends on whether the foreclosure is a judicial sale or a nonjudicial sale.
Pre-Foreclosure: After the property owner fails to make two to three mortgage payments (30-60 days), the property is considered to be in pre-foreclosure. When the property is in pre-foreclosure, lenders will usually send a demand letter demanding full and immediate payment of the loan, plus any legal and late fees incurred. The homeowner has 30 days to make the payments on the debt owed or the foreclosure process will be initiated.
Notice of Default: After 90 days of non-payment by the property owner, the foreclosure process enters into the legal process. A bank will issue a notice of default to a local sheriff to deliver to the property owner. The notice of default will be recorded by the government agency and a date will be selected for a foreclosure auction. A notice of default also paves way for investors and other homeowners to consult a short sale on the property.
Foreclosure Auction: A public foreclosure auction will take place and the property may be sold at the auction to the highest bidder. The lender issuing the default can also purchase the property and sell it independently in a private sale. At this time, the homeowner must vacate the property or an unlawful detainer will be filed to evict the homeowner if he or she is still living on the property after the sale.
Post-Foreclosure: If proceeds of the sale are insufficient to satisfy the debt being foreclosed on, the lender can bring personal action on the homeowner borrower for the deficiency. In some states, the borrower may have a right to redeem after a foreclosure by paying the entire sale price.
At anytime prior to a foreclosure sale, the homeowner or mortgagor may redeem the property by paying the amount due. This is known as the right of redemption. If the mortgage contains an acceleration clause, the full balance on the mortgage must be paid in order for the homeowner to redeem.
The best way to avoid foreclosure is to ensure that your mortgage payments are made regularly and on time. However, there are several ways homeowners can avoid foreclosure proceedings before they occur:
- Try to Work with the Lender: Do not avoid the lender if you are about to miss a payment or are behind in making regular payments. Lenders want to avoid foreclosure proceedings at all costs and talking to your lender could lead to solutions before foreclosure becomes a possibility.
- Change the Terms of your Loan: Changing the terms and period of your loan may extend the life of your loan, but will lower the payments making it easier on you to make regular payments. Modifications of interest rates could be risky since the interest rates start low then increase throughout the life of your loan.
- Ask for Forbearance: If you are having trouble making payments, ask your lender for forbearance period in which brings your loan current and you do not have to make any payments for a specified period. This could help you save money during the forbearance period and pay a lump sum at the expiration of the forbearance period.
- Sell your House: Before a foreclosure proceeding begins, consider selling your house. This is beneficial since you will be in control of the sale instead of your lender and you can use the proceeds of the sale to pay the remaining balance of the mortgage while keeping some for yourself.
- File Bankruptcy: It may not be the best option, but filing for bankruptcy may help homeowners in severe debt avoid a foreclosure proceeding. A chapter 7 bankruptcy will discharge your debt owed on your home and stall the foreclosure process. Under a chapter 7 bankruptcy you would not be able to keep your house since the proceeds will be distributed to other creditors. Under a chapter 13 bankruptcy, a homeowner can temporarily stop a foreclosure process and can make the lender accept a repayment plan in which the homeowner can afford. Under this method, a homeowner can still be able to keep their home, but must pay the remaining debt over time.
Foreclosure can be a costly and complicated process. You should speak with an attorney regarding your foreclosure situation in order to determine your possible courses of action. A real estate lawyer can provide valuable legal information as well as representation in a court of law should a lawsuit become necessary. Contact a lawyer to learn more about your state’s foreclosure laws.