What Is A Foreclosure?

What does foreclosure mean? How do foreclosures work? When can a bank start foreclosure? Is it possible for homeowners to get their homes back if they have been foreclosed on?  These are just a few of the questions our clients find themselves asking. Foreclosure is the last step that lenders take to recover their money from borrowers who have defaulted on their loans.

“Foreclosures often occur because a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or mortgage servicer, can seize the power of sale and sell the property as stipulated in the terms of the mortgage contract.

Types of Foreclosure:

Once a borrower falls behind and fails to satisfy the bank then proceeding of the foreclosure starts. There may be two types of foreclosure:

  • Judicial Foreclosure
  • Non-Judicial

Judicial Foreclosure Vs. Non-Judicial Foreclosure

What Is A Judicial Foreclosure?:

In states where the foreclosure process goes through a court process those are referred to as Judicial Foreclosure. Many states allow judicial foreclosures, but only twenty nine states allow power of sale to be obtained without court action; Those are known as non-judicial foreclosure states. Auctions are often carried out on the court steps or in a Sheriff’s Sale. In a Foreclosure Auction the property is sold to the highest bidder.

What Is A Non-Judicial Foreclosure?:

Power of sale is also known as the statutory foreclosure process. After a mortgage is defaulted on, a notice is issued from lender demanding payment. A Notice of Default (NOD) filed is a sign that the process is going through a Non-Judicial Foreclosure Process and these auctions are often more practical though they do have to go through a judicial review to ensure the legality of the process from time to time.

Foreclosure Process Thresholds

Notice of Default (NOD):

If the payment is 60 days late, even after the receipt of the missed payment notice borrower does not make any payments, then the bank may proceed by filing a Notice of Default (NOD) after the breech letter expires. Notice of default includes borrower name, property details, amount that you are delinquent, number of days you are behind your payment date and a statement indicating that you are in default under the mortgage contract that you signed at the time of purchase of your home.

Notice may also include that the bank can take further measures, in some states, if the debt isn’t cured immediately. After receipt of NOD, the borrower needs to take immediate action to avoid the foreclosure. Even in a case of ignorance the bank will initiate the foreclosure process.

Notice of Trustee Sale (NOTS):

If the borrower does not respond to the Notice of Default, then bank’s representative eventually sends a foreclosure notice. This notice states that the bank has initiated the foreclosure proceeding and scheduled the sale of your home for auction. It also comprises the amount you currently owe, interest, name of your bank and the contact information about the attorney of the bank.
After the receipt of a dread foreclosure notice, if the borrower fails to satisfy the bank, foreclosure will continue until the home is sold. At any stage of the foreclosure process borrower can talk to the lender or a housing counselor about the available alternatives that may exist and can help avoid foreclosure.

Foreclosure Collection Attempts:

Consumer protection laws force the banks to have to make attempts to reach the borrowers prior to proceeding with foreclosure and offering assistance programs. Certain states like California offer the Homeowner’s Bill of Rights (SB900) which offers protections against the bank foreclosing without following the proper process.

Missed-Payment Notice:

All the banks assume to receive the payment within the due date and some banks also provide a grace period of ten days to make the payment. If a borrower makes payment within grace period, there is no action taken by the bank, but in case of failure, a missed payment notice is served to borrower. On the receipt of notice if the borrower makes a payment with late fee, then the bank does not initiate foreclosure process.

Notices to Be Served Before The Foreclosure:

Before the start of the foreclosure process there are a number of notices required to be served from the lender. If the borrower does not respond to these notices, then foreclosure process is initiated. Following are the notices that must be issued from lender before proceeding foreclosure process:

  • Breach Letter

OR

  • Notice Of Intent

Process of Foreclosure:

The foreclosure process may be different depending upon the state that you are residing in. If you have a home mortgage, then you must learn about the foreclosure process and foreclosure law prevailing in your state. There may be different rules and regulations for serving the notices that must be posted or sent by mail. Redemption periods and notices issued regarding the auction of property also may vary.

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