Foreclosure is the process a lender undertakes if you have defaulted on your loan.
When you got your loan, you pledged the home as security in case you couldn't make the
payments. To make up the difference between what you've paid and what you owe, the
lender can sell the house. After the lender is paid, and any other lien holders such as
second mortgage lenders, the remaining amount is given to the borrower. However, there
usually isn't any money left over.
Depending on the state, there are two types of foreclosure, judicial foreclosure and
non-judicial foreclosure. Judicial foreclosure involves use of the courts, and may result in
a deficiency judgment. A deficiency judgment is obtained by the lender against the
borrower if the sale of the home did not cover the total outstanding loan
amount. The judgment makes the borrower responsible for coming up with the difference.
Judicial foreclosures tend to take a long period of time, anywhere from a few months to a couple of years. Due to the lengthy process of a judicial foreclosure, many lenders prefer
a non-judicial foreclosure.
A non-judicial foreclosure as it's name suggests does not involve the courts.
In this case the lender still sells the house to satisfy the outstanding
loan amount, however the lender is not allowed to get a deficiency judgment against the
borrower. A lender's main advantage in a non-judicial foreclosure is that the process tends
to be short, usually only 3 to 6 months.
The specifics of foreclosure varies by state, but in most cases they follow three basic steps.
(1) Notice of Default
The notice of default is to inform the borrower that the lender intends to start foreclosure procedure due to missed payments. The notice of default can technically come just after 1
missed payment, but usually most lenders wait till several payments have been missed.
Foreclosure does not start until the notice of default has been given.
(2) Redemption Period
The redemption period is a period of time when the borrower can bring the loan amount current,
or workout some agreement with the lender. The time period varies depending on the location and type of loan.
(3) Sale at Public Auction
The property is sold at a public auction so the lender can recover the outstanding debt.
Some states have a Post-Sale Redemption Period, when the borrower can pay the entire outstanding
amount in full and get the property back, however most borrowers do not redeem the property.
If you are unable to make a payment on your mortgage don't ignore the problem. There is a chance you can
After exhausting all possibilities you might consider
filing for bankruptcy.
However you should take note that a bankruptcy could be on your credit report longer
than a foreclosure. Since bankruptcy is controlled by state and federal law, be sure to talk to a lawyer
or an Housing and Urban Development approved councilor. A lawyer or approved councilor will
assist you in determining what other options might be available to you.
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