July 7, 2011 by Ann McLaurin
The foreclosure process is not very difficult to understand. There are several stages during which the homeowner has an opportunity to bring the loan current and avoid foreclosure. Below is a generalized breakdown and may differ state to state.
- Missed payments. The first sign that foreclosure is coming is when a homeowner gets behind on their house payments. Lenders usually understand if a homeowner falls behind on one or two payments and will offer repayment plans so the homeowner can get back on track. However, if they don’t, the foreclosure process will continue.
- Lender notices. After a homeowner misses payments, the lender will contact with them by mail, phone or both. The timeframe depends on the lender. The lender will most likely want to avoid foreclosure as much as the homeowner, so this dialogue can benefit the homeowner in finding alternatives to foreclosure.
- Options are discussed. The homeowner and the lender can brainstorm ideas on how to rectify the situation. If the homeowner and the lender can come to an agreement on payments to get the mortgage back on track, the situation is resolved and foreclosure is avoided.
- Foreclosure filing. If there is no solution to the process, the lender will begin filing a lawsuit to foreclose on the home. This brings the question of foreclosure before a judge. During this process, a title search must occur to make sure if the lender is permitted to foreclose and is not engaging in unjustified foreclosure. In some jurisdictions, court-ordered mediation must take place between the lender and the borrower after the borrower is served with the foreclosure suit, but before the final foreclosure decision, as a last-ditch effort to avoid foreclosure.
- The home is foreclosed upon. The lender resumes all rights and responsibilities of the property. The previous homeowner no longer owns the home.
- Foreclosure auction. At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney conducting the sale, for the lender.
When a property is purchased at a foreclosure sale, all junior liens other than property taxes are wiped out. Priority of liens is determined by the date of recording. When you purchase an REO, you will typically receive the property with a clean title.