Foreclosure – What Is It?

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In the real estate world we always hear and use the term foreclosure. In the current state of our economy, foreclosure is all over the news. In simple terms, you know that it means losing your house because of not paying the mortgage. But actually, foreclosure is the last step of a long process where the lender tries to get the money you borrowed from them. So what happens during the foreclosure process? It all starts with pre-foreclosure. The lender will send a late payment notice once a person misses the first payment. If the homeowner ignores this notice then continues to miss another payment without contacting the lender, then another payment request will be made. The lender may then make a demand for a payment in full if the homeowner still does not contact the lender. In most standard mortgage contracts this is stipulated under the acceleration clause. The homeowner will not only owe the balance of the mortgage but also any late payments, legal fees and late fee penalties. The bank will not accept anything other than full payment once the acceleration clause has been evoked. And then the formal foreclosure process begins.

Foreclosure process varies in every state. Learn about your state’s foreclosure laws and processes if you are worried about making your mortgage payments. The differences among states range from the notices that must be posted or mailed, the redemption periods, and the scheduling and notices issued regarding the auctioning of the property.

Mortgage companies in general start foreclosure processes in about 3-6 months after the first mortgage payment that has been missed. It is extremely important to stay in contact with your lender within the first month of missing a payment because most mortgage companies recognize that homeowners may be facing a short-term financial hardship.

There are three types of foreclosures that may be initiated once the formal foreclosure process begins:

Judicial Foreclosure

Strict Foreclosure

Foreclosure by Sale

All types of foreclosures require public notices to be issued and all parties are notified regarding the proceedings. The properties are then sold to auction and at this time the families have a small amount of time to find a new place to live and move out before the sheriff issues them an eviction.