Foreclosure Stages

A lender can foreclose by selling the property or taking over the property to recover the amount owed. While the foreclosure process is different for each state, there are multiple central phases to a foreclosure process.

Stage 1: Payment Default

 

Payment default is when a borrower misses at least one mortgage payment. However, the technical definition of this term can vary from lender to lender. The lender will contact the borrower by telephone or letter after the default payment has been missed.

Mortgage payments are usually due on the first day of every month. Many lenders allow a grace period up to the 15th of each month. The lender might charge a late payment fee or send the missed payment notice.

The lender will likely contact the borrower by telephone after the second month of a missed payment. The lender may still be willing to work with the borrower in order to catch up on missed payments. This may include one payment to avoid falling behind further.

A demand letter is sent by the lender to the borrower if the borrower does not make a payment for three consecutive months. It states the amount in default and gives the borrower 30 days to pay the mortgage on time.

A mortgage in default may lead to one of three outcomes: return to good standing, modification, or the property being repossessed, sold through foreclosure, or voluntary surrender.

 

Stage 2: Notification of Default

 

After the fourth month of missed payment (90 days overdue), a notice (NOD), is sent. This public notice gives the borrower 30 day to make past due payments before formalizing the foreclosure process.

Lenders won't send notices of default until the borrower has paid three consecutive missed payments or is 90 days late. A borrower could fall behind for a few months without being subject to foreclosure.

Federal law generally prohibits lenders from initiating foreclosure until the borrower has been more than 120 days late.

 

Stage 3: Notice To Trustee Of Sale

 

The process of initiating foreclosure depends on where you live. In certain states, non-judicial foreclosures are possible. This only requires you to file paperwork with the appropriate court in order to initiate the process. This allows for the foreclosure process to move quickly. Some states also have judicial foreclosures. These require approval from the court for each step. This makes it a little slower.

After the necessary approvals have been received, the foreclosure trustee or lender's attorney will schedule the sale of the property. The notice of trustee's sales (also known as a notice of sale) is recorded in the county where the property is located. It details the exact time and place of the sale as well as the minimum bid.

In general, the lender must advertise the property in newspapers, signs, and other media. The property must be advertised in advance of the auction, at least two weeks before it goes up for auction.

It varies from one state to another, but it can take as little as two months for the notice of demand and auction date. The borrower has the option to make payment arrangements, or pay the entire amount, plus any attorney fees, up until the date that the auction takes place.

 

Stage 4: Trustees' Sale

 

The property has been put up for auction. It will be awarded to the highest bidding bidder that meets all requirements. The lender or the firm representing it will determine an opening bid based upon the amount of the outstanding loan, any lien, unpaid taxes, and other costs.

The buyer can decide how long they will stay in the property after it is foreclosed.

After the highest bidder is confirmed and the sale has been completed, the trustee's deed will be given to the winning bidder. The purchaser is then entitled to take immediate possession of the property.

 

Stage 5: Real Estate Owned

 

The lender will establish a minimum bidding amount, which will take into consideration the property's appraised value, remaining mortgage payments, and any attorney fees. In an effort to make the property more appealing, the lender might remove some liens or other expenses.

 

Stage 6: Eviction

 

When the auction closes and a new owner is identified (either the auction winner, or the bank, if the property has not been sold), the borrowers receive an order to vacate the property.

It is possible to give the occupants several days to vacate the premises and take their personal belongings. In most cases, the sheriff or local law enforcement will then visit the property to remove the items and seize any other belongings.

 

A Recommendation

 

Many lenders will try to help the borrower avoid foreclosure by making arrangements to pay off the loan. It is worth talking to the lender if there is any chance that the borrower could catch up on their payments, such as if they have just started a new job after a period of unemployment.

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