How Does Foreclosure Work?
Though Foreclosures Sound Scary, they can be Handled Correctly!
In the US, each state deals with foreclosures in its own way. Foreclosures happen whenever the lender opts to repossess the property because the homeowner failed to make payments on their mortgage. It is normal for the foreclosure process to begin when the homeowner fails to make their mortgage payments for a few months. However, the foreclosure process can also begin earlier or later.
Two different courses
The foreclosure process may take two different courses. It all depends on your state. The first course is called the judicial foreclosure in which the process goes through a court of law. In this type of foreclosure, the borrower has the opportunity to raise their defenses. The second course is called non-judicial foreclosure. This kind of foreclosure occurs without involving a court of law and involves a series of steps. One of these steps requires a written notice under a power of sale clause in your mortgage or trust deed.
Inform the borrower
Typically, a foreclosure process requires that the borrower be informed about the proceedings, and in most cases, involves giving them a public notice. Each state has its own regulations regarding the serving of the notice and scheduling of the foreclosure. Some states mandate a right to mediation which must take place prior to the start of the foreclosure procedure.
Once you receive the notice, you should read it carefully and act on it promptly.
It bears keeping in mind that when you fail to make your mortgage payments, the lender has the legal right to repossess your home and then sell it further to recoup their money. Foreclosures are legal remedies in which neither the lender nor the borrower wins. A foreclosure is an unfortunate event but there are steps that you can take to prevent it from occurring.
In the year 2006, almost 1.3 million homes went through the foreclosure process. Colorado is the state with the highest number of foreclosures – 1 in every 376 homes were foreclosed in the state. Also, the number of foreclosure filings has risen. 43 percent from 2005 and real experts say that there will be more foreclosures than in the year 2007.
Better understand the terms of your loan
More than 60 percent of homeowners wished they had taken time to better understand the terms of their loans and the same number of borrowers who faced mortgage problems were not aware of how to receive help to avoid a foreclosure. Keep in mind that a foreclosure process may begin even after the first missed payment but this happens very rarely. Most banks and lenders are prepared to give you a grace period for late payments, but will probably add a fee.
Mostly, after 30 days of being late, the alarm bells will start ringing. If you miss a second payment, then the lender will probably call you to find out the reason for the missed payment. In a majority of cases, the lender will accept late payments to bring the loan to normalcy and they may refuse partial payments.
If you fail to make your payments for three months, then things become much more serious. This is when the foreclosure process will be set into motion by the lender. All states in the US allow for judicial sales but only 29 permit power of sale. If your state permits the power of sale, then your loan papers will probably include a clause allowing this method.
In the judicial sale, the lender files a suit within the court system and you will receive a letter from the court. You have about 30 days to respond with payment to prevent the foreclosure from proceeding further. When the payment period ends, the judgment will be entered and the lender has the right to request the sale of your home by auction. Once your property has been sold, you will receive an eviction notice and you must vacate your home immediately.
In the power of sale, the lender serves the borrower with papers asking for payment. Once the permissible waiting period expires, the deed of trust will be drawn to convey the property to a trustee on a temporary basis.
The trustee can then sell the home via a property auction. It is common practice for the foreclosure process to undergo a judicial review to ensure that no laws are being broken. The lender may also have to post a public notice about the sale via auction.
In both foreclosure methods, all parties need to be given notice of the proceedings. A deficiency judgment can also be made against the borrower if the amount realized by the sale does not satisfy the loan amount. Strict foreclosure is no longer being enforced. In this type of foreclosure, the judgment is made and the property will then automatically be assumed by the lender. The only states still practicing this kind of foreclosure are Vermont and Connecticut.
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