If you find yourself facing foreclosure (or even threatened by the prospect of it), it’s absolutely critical to understand how the foreclosure process works.
Understanding the Foreclosure Process
What is foreclosure anyway?
Legally, foreclosure is the official process by which a mortgage lender attempts to take back real estate property (a home) securing a loan (a mortgage) – usually, after a borrower (or a homeowner) stops making payments.
By no means is foreclosure fun, but it’s not the end of the world.
By knowing how foreclosure works… you’ll be much better equipped to navigate it well and come out on the other end in the best position possible.
Stages of the Foreclosure Process
Foreclosure works differently in different states around the country, but there are a few stages that are important to any foreclosure process.
There are generally two ways different states use to foreclose upon a property: judicial sale or power of sale.
In either scenario, a foreclosure action typically doesn’t make its way to court until 3-6 months of missed payments. Usually (but not always), a lender will send out several notices letting you know that you’re overdue or behind in your payment.
Under Judicial Foreclosure:
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- You’ll have 30 days to bring payment to court to avoid foreclosure (sometimes that can be extended).
- If you don’t pay after this period, a judgment will be entered and the lender can request the sale of your property – generally through an auction.
- Once the property is sold, the local sheriff serves an eviction notice and you must vacate the property.
Under Power of Sale (Non-Judicial) Foreclosure:
- The lender serves you with a notice demanding payment, and the courts are not required – although there may be some level of judicial review.
- After the established waiting period has gone by, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
So, What Happens After A Foreclosure Auction?
After a foreclosure is complete, the amount of the loan is paid off with the proceeds from the sale of the property.
Sometimes, if the sale of the property isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower. A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of the sale, while other states will allow the full loan amount to be assessed.
Generally, it’s best to try to avoid a foreclosure auction. Instead, call up the bank to negotiate, or work with a local, reputable real estate firm like us at Move On House Buyers to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure.
Experienced investors can help you by negotiating directly with the banks – or even eliminate the prospect of a foreclosure, even if your home is worth less than you owe.
If you’re currently facing foreclosure and need to sell a property fast, please let us know. We can help!
We buy houses nationally and online from people who need to sell fast!