What is a foreclosure?
A foreclosure can be a scary thing, but hundreds of thousands of families have to go through it each year. What does it mean to be foreclosed on? How long does it take? Here are the steps that most foreclosures go through.
The first step that occurs is a homeowner defaults on their mortgage. This means that the homeowner has failed to pay their monthly payments. A bank cannot just decide to foreclose on a home. It is also highly unlikely that a bank will start a foreclosure after one missed payment. There is usually a grace period, and if the homeowner makes their payments, it is unlikely to lead to foreclosure process beginning. They will however send notices and make calls to collect. A bank will usually try to work with the homeowner to get up to date on payments so that they can keep their home. This is not only in the bank’s best interest so that they can get the money they are owed, but there are laws in many states that require the bank to work with the homeowner to explore options to avoid foreclosure. These may include payment or interest adjustments, deferral, or other options. Sometimes it is better for a homeowner to sell their home, either in a regular sale or a short sale to pay the bank what it is due. Then the homeowner is free to find a more affordable living arrangement. Most states require a minimum of 30 days after the bank contacts the seller before they can file a notice of default.
The next step is a Notice of Default. If the homeowner cannot pay what they owe, the lender then can issue the notice. It will be mailed to the homeowner and will usually give them a timeframe, typically 90 days, to pay off their bill. At this time, the foreclosure process is underway. However, if a homeowner is able to pay all of the missed payments, plus interest, and many times lender fees they will be able to reinstate their mortgage and go back to making their regular monthly payments.
If by the time 90 days passes and the homeowner cannot reinstate their mortgage, the bank will move to the next step of the foreclosure process. The next step is the notice of sale, which means the property is going to in 21 days. The notice is sent to the homeowner, but also published in the local paper for three weeks before the auction date. Up until five days before the auction the homeowner can still reinstate their mortgage if they are able to come up with the required sum.
The final step is when the property is sold at a public auction. The highest bidder must then pay the full amount immediately. Once payment is made, the buyer becomes the official owner and receives the deed. The new owner then must serve any remaining occupant of the property a written notice to quit, or move out, in three days. If they do not move out, then the new owner must go through a formal eviction property. Finally, if the property does not sell at auction it then becomes a real estate owned property, or REO, and will be formally listed for sale. The bank will then own the property and the former owners will be removed from there.
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