Considering the recent economic recession and the difficult financial situation that many people across the United States found themselves in, it is useful to familiarize yourself with the home foreclosure process. This will help protect you in the event of a foreclosure on your home and can also prove to be helpful if you would otherwise be at risk of foreclosing on your home as well. Read on for a brief guide to the home foreclosure process and how you can avoid it.
Defaulting on Mortgage
The first step in the foreclosure process occurs when the borrower does not make payments on her mortgage properly. While terms of mortgage agreements will vary from lender to lender, when you reach a certain point after having not made payments on your mortgage, you "default" on the mortgage. Once you have defaulted, if there aren't any cosigners who will assume responsibility for the payment, you'll begin to go through the foreclosure process.
Motion in Court
After the lendee defaults on the mortgage, the lender will make an official motion to reclaim the property that is in question. This is done by filing a particular type of notice in court, called a Notice of Default. In other situations, this same notice is referred to as a Lis Pendens. The filing of this notice opens up a pre-foreclosure window in which the lender can make certain negotiations in order to avoid foreclosure. Specifically, if the lendee doesn't want to have her property foreclosed, she can either pay the balance of the loan immediately or renegotiate a new loan term with the lender. Reinstating the loan, or paying off the balance of the defaulted payments, is also an option. The period of pre-foreclosure time is typically on the order of about one month.
Selling of the Home or Short Sale
There are other options available to the lendee during the pre-foreclosure period as well. If you're able to find a third party to buy the home from you, you can use that money to pay off the balance of the loan and extricate yourself from the entire situation. However, if you aren't able to make enough money from the sale of the home to pay off the mortgage, you'll need to engage in a "short sale." This must be negotiated with the lender and consists of a sale in which the sale of the home does not cover all of the necessary costs.
Sale of Home
If you do not work out a pre-foreclosure agreement, the home will be sold on auction. In this case, you may be able to work out rental agreements with the purchaser. If the home doesn't sell on auction, however, the lending company will likely continue to sell it through the real estate market and will choose to evict you for the purposes of marketing the home.