If you are in a situation where foreclosure seems imminent, you may be wondering, how does foreclosure work? There are some important things to know about foreclosure, especially if it looks like you might have one in the future.
Foreclosure is a process that lenders use to claim property used as collateral against a mortgage loan. As much as the rising foreclosure rate has been in the news lately, lenders would actually rather not foreclose on your home.
Although it may seem the opposite when collection letters and phone calls arrive, lenders prefer to fix the problem and avoid foreclosure. They are not in the real estate business and selling foreclosed properties costs them a good deal of resources. Having to sell the properties at a loss, which is often the case, leads to even greater losses for the lender.
Sitting on a huge portfolio of foreclosed properties, rather than receiving a steady stream of income from mortgage payments, can cause major problems for the lender. The real estate market in many areas is weak, making it difficult to sell properties. In many cases, foreclosed properties need substantial renovation before they are sold, another reason lenders prefer to avoid a foreclosure situation altogether.
For the above reasons, being proactive and trying to find a solution to avoid foreclosure should be the first course of action if you fear that your home may be in danger. If that fails and foreclosure seems inevitable, here’s how foreclosure works and what to expect.
First, you generally must be 60 days late on your payments before foreclosure begins. Before you reach that milestone, we will generally contact you when your first mortgage payment is 30-45 days late. Don’t avoid this contact. It may be your best chance to resolve your foreclosure.
After the lender has contacted or attempted to contact you, the next step in the foreclosure process is usually a letter from the lender demanding payment. This is a formality. Typically, the letter states that you, the borrower, have 30 days to make the late payments and late charges that have been assessed.
At this point, your delinquency has been reported to the credit reporting agencies, so your credit score will have suffered. That is a great reason to try to figure something out before you are a criminal.
The next step in the foreclosure process generally occurs approximately 60 days after the lender should have received payment. At this time, the lender will turn over the delinquent account to their legal department to begin formal foreclosure procedures. Your first step is usually to hire a local law firm to initiate the actual foreclosure. In some cases, the lender may maintain a local signature in advance.
It is at this point in the foreclosure process that the proceedings are made public. It is a law in most jurisdictions that foreclosure notices must be made public. The notice of foreclosure is filed with the county court. Details of your foreclosure and delinquency will be published in the legal or real estate section of your local newspaper. In other cases, they will be posted on the county website or in the courthouse itself.
In many cases, attorneys hired by the lender will defend your case before a judge in a formal foreclosure proceeding. If the judge approves, your home will be ready for sale to the highest bidder. Typically this occurs approximately 120 days after the payment was lost. Some states allow non-judicial foreclosure proceedings and some allow judicial or non-judicial foreclosures.
However, there is a big difference in the actual foreclosure schedule depending on the state where the property is located. For example, the processing period in Texas, Georgia, and Tennessee is very short, 27 days, 32 days, and 40 to 45 days, respectively. On the other hand, New Jersey, Illinois and New York have much longer foreclosure processing periods, at 270 days, 300 days and 445 days.
Some states also allow what is called a “redemption period” in which the auction winner will actually be awarded the right to purchase your home. If your state has such a period, the length varies. In California, Missouri and Alaska it is one year, while Minnesota allows 5 years. At the other end of the spectrum, Massachusetts, Texas, Florida, and Georgia, among other states, do not allow foreclosure redemption periods.
If you are facing possible foreclosure, the most important thing is to be proactive. Contact your lender and try a solution. It is in the best interests of both parties to do so. You don’t want to see firsthand how the foreclosure process works.