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The Foreclosure Process

Understanding the Foreclosure Process

The foreclosure process may seem daunting at first, but the basic steps are not that complicated.

The foreclosure process will normally begin around three-to-six months after the borrower misses the first mortgage payment. At this point of the process, the borrower may be able to work something out with the lender. Avoiding the lender will typically accelerate the foreclosure process. If the process commences, the borrower has the right to stop the foreclosure at anytime during the process by paying off the debt.

One caveat about the foreclosure process – each state is different in their timelines, as well as some of the steps in the process. However, there are some basic steps that most states follow. Depending on the state, the foreclosure can take anywhere from 27 days to over a year. The process is generally broken down into two major phases: Pre-foreclosure Period and Notice of Sale / Auction.

Pre-foreclosure Process

The pre-foreclosure phase normally begins after the lender files a Notice of Default or Notice of Pending Lawsuit with the court. The lender is required to notify anyone impacted by the default. There is a specified timeframe between the court action of the Notice of Default and the second phase of the process. However, this timeframe differs for each state. For example, California requires three months after the Notice of Default before the lender can file a Notice of Sale / Auction, while Florida can be 20 days.

Notice of Sale / Auction

After the state-authorized prescribed timeframe has passed, if applicable, the lender can then file a Notice of Sale or Notice of Auction. Normally, the notice must be published for a specified amount of time. Once the auction occurs, the winning bidder may take possession of the property in a certain amount of time if no one disputes the sale.

Redemption Period

In some states there is a redemption period, where a borrower may redeem the property if the note and applicable fees are paid during the redemption period. However, not all states provide for a redemption period.

While the foreclosure process is similar in most states, it is imperative to know the steps and timelines individual state mandate.

Preventing a Foreclosure

Best steps to Stop a Foreclosure

When faced with a looming foreclosure, there are a few steps you can take to possibly stop it.

Raising Additional Funds

Whatever happens, don’t panic. Are there any friends and relatives that might be able to help?. Are there any savings or assets such as a vehicle that can be sold to raise cash? If not, contact a HUD approved housing counselor, even if you do not have an FHA loan. Next, contact the lender whenever a payment is missed. Putting that off only makes matters worse.

Claim Advance

With a deed in lieu of foreclosure, the lender accepts the return of your title but may sue you for any loss and report loss to the IRS as taxable income. If the property was bought with less than 20% down the private mortgage insurer may allow a claim advance to pay the delinquent amount for a few months, then add them to the end of the loan. If you have been affected by flooding, a hurricane, or other disaster your mortgage lender may allow deferring payment for a few months.

Loan Modification

Other options open to the lender include a forbearance, where they may write off about 3 monthly payments entirely. A modification changes the interest rate to current market rates and/or extends the term of the loan. With a re-amortization, the remaining balance is added to the end of the loan. Be aware this could raise your monthly payment. If it’s a Va loan, the VA can buy the loan from the lender, this is called a refunding.

In a reinstatement, after 2 or 3 missed payments you pay whatever you owe plus late fees and the loan continues without change. With a repayment plan, a small amount is added to the monthly payment until the loan is current.
By refinancing, the loan is changed from adjustable rate to a fixed rate, or to a lower interest rate.

Short Sale

By doing a short sale, the lender may be willing to settle for less than what is owed to them, and specify a date to find a buyer. This may result in owing income tax.

Purchasing a Foreclosure

Finding a Foreclosed Home

A foreclosure is a home that someone else had to give up because they were no longer able to make their monthly payments to the mortgage company. When the home owner is unable to pay the mortgage the bank can evict them and take the property back.

Because the lender is losing out on their investment they often offer the property at a reduced rate or discount because they are trying to recover their investment as quickly as possible. Foreclosed homes are often difficult to find and purchase, but if you do find a foreclosed home it could wind up being one of the better deals in the neighborhood.

There are several ways that you can go about finding a foreclosed home. First, choose the area where you would like to find a home. When you have found a few neighborhoods that you are interested in you can search websites like foreclosuretech.com and others that offer lists of foreclosed homes in your chosen area.

Another good place to look for foreclosed homes is through local lenders. When a lender takes back a home it is called an REO, which stands for “Real Estate Owned Property”. They keep lists of their REO’s often times on their corporate website, you can also contact them over the phone and/or through a dedicated realtor. They should be able to let you know what agent handles their properties if that information is not listed on their website.

When you find a home that you like it is important to physically check out the home because the condition could be much worse than advertised. After inspecting the home make sure any needed repairs plus the cost of the home itself does not end up totaling more than the cost of a comparable non-foreclosed home. If the home is in good shape without needing major repair and it’s being offered at a lower foreclosed price you may be able to save quite a bit of cash.