Foreclosure Basics

A lender can foreclose by taking over the mortgaged property and trying to recover the amount due on a defaulted loans. A default occurs when a borrower misses one or more monthly payments. However, it can also occur when the borrower fails other terms of the mortgage agreement.

Knowing What A Foreclosure Is

 
 

The legal basis for foreclosure is a mortgage or trust contract. This gives the lender the right to use a property as collateral if the borrower fails the terms of the mortgage document. While the process is different from one state to another, the foreclosure procedure generally starts when the borrower defaults on a mortgage payment or fails to make a timely payment. The lender sends a missed payment notice to indicate that it has not received that month's mortgage payment.

The lender will send a demand notice to the borrower if they miss more than two payments. Although this is more serious than a missed repayment notice, the lender may still make arrangements to allow the borrower to catch up.

After 90 days of non-payment, the lender sends a notice. The lender will give the loan to its foreclosure department. The borrower has a period of 30 days to pay off the outstanding payments and reinstate the loan. This is known as the "reinstatement time." If the homeowner fails to make the missed payments, the lender will start to foreclose.

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The Foreclosure Process Varies by State

Every state has its own laws regarding foreclosure. These notices must be posted publicly by lenders. The homeowner also has options to bring the loan current or avoid foreclosure. There are also timelines and processes for selling the property.

The lender taking over property is called a foreclosure. It is usually the last step in a long pre-foreclosure process. The lender might offer alternatives to avoid foreclosure. Many of these options can mitigate the negative effects of foreclosure on both the buyer or the seller.

Avoiding Foreclosure On Your Property

There may be options to avoid foreclosure even if the borrower has missed one or two payments. There are several options:

 

Reinstatement:

During the reinstatement period, the borrower may pay back all owed including missed payments, interest, and penalties before a specified date in order to get back on track.

Short Refinance:

The new loan amount will be less than the current balance. To avoid foreclosure, the lender might forgive the difference.

Special Forbearance:

If the borrower is experiencing temporary financial hardship such as medical bills, or a drop in income, the lender may be willing to reduce or suspend payments for a specified amount of time.

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If A Property is Unable To Sell At A Foreclosure Sale

If a property is unable to sell at a foreclosure sale, or if it never went through one otherwise, lenders usually banks typically take over the property and may add to an accumulated collection of a foreclosed property.

You can usually find foreclosure properties on the banks' websites. These properties are attractive for real estate investors because banks may sell them at a discounted market value which can adversely affect the lender.

The borrower will see a foreclosure on their credit report within one month. After that, it will stay there for seven years starting from the day of the first missed payment. After seven years, the foreclosure is removed from the borrower’s report.

Go Back To The Foreclosure Overview Now.

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