Facing Foreclosure


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Understanding the Steps to Foreclosure

Today an increasing number of homeowners have either gone through the process of foreclosure or are facing it as a possible option. Foreclosure is the process that allows a mortgage lender to recover the amount that is owed when a homeowner defaults on their mortgage. This is accomplished by taking ownership of the home.

In understanding the foreclosure process, it is important to realize that the actual process and steps involved can vary somewhat from one state to another. In essence; however, there are six basic steps involved in the foreclosure process.

The first step of the process occurs when the homeowner details on the payments. When a homeowner fails to make even one mortgage payment that sets the ball rolling to foreclosure. When the homeowner misses one payment, the lender will usually send out a notification of missed payment. If the homeowner is able to catch up on that payment and remains current, the process stops and does not proceed any further. Most lenders provide a 15 day grade period. If; however, the homeowner does not catch up on the payments, the process proceeds. Typically after the homeowner is behind two payments, the lender will send a letter known as a demand letter. Even at this point, the lender is usually still willing to work with the borrower to make payment arrangements and allow them to catch up on their mortgage.

A Notice of Default or NOD will usually be sent after the homeowner is 90 days behind or has missed three payments. The NOD may be placed on the actual home in some states. It is at this point that the loan will usually be transferred to the foreclosure department with the lender. The Notice will then be recorded with the county in which the home is located and the lender will commonly give the homeowner an additional 90 days to settle the payment and have the loan reinstated.

If the homeowner does not catch up on the payments within that 90 day timeframe, the next step is a recording of the Notice of Trustee Sale with the county. The lender may also publish a notice of sale in the local newspaper to let the public know the property will be available for purchase at a public auction. The notice will contain the names of the owners along with other information including the property address, a legal description of the property and when and where the auction will occur.

At the sale, the property will be offered to the highest bidder who also meets all of the other necessary requirements. An opening bid will usually be calculated by the lender based on the amount of the outstanding loan, any unpaid taxes, liens and costs relevant to conducting the sale. A Trustee's Deed Upon Sale will be given to the winning bidder at the time of the auction. The new owner may then take possession of the property.

If the home is not sold during the auction, the lender will then become the new owner of the property and will try to sell it, either on their own or through a real estate agent. In this case the property is referred to as being real estate owned (REO) or bank owned.

In some instances the original homeowner may remain in the home until it either sells at the public auction or until it sells as a REO property. An eviction notice will usually be sent out demanding that anyone living in the home vacate it immediately. When this occurs, the lender may ask the local sheriff to come by the property and physically remove any occupants and their belongings if they do not vacate the property within a specified time period. Personal belongings may be placed in storage, which the borrower may retrieve for a fee.

Most lenders will attempt to work with homeowners throughout the foreclosure process to find a solution that will allow the homeowner to get caught up on their loan and avoid actual foreclosure. The most common problem is that if a homeowner cannot make one payment, the chances of being able to get caught up on multiple missed payments is even lower. If you find yourself in this type of situation and there is even a chance of being caught up; however, it is best to always approach your lender and try to work out something rather than ignoring the situation until it becomes dire and the only solution becomes foreclosure.



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