No one wants to go through a foreclosure, but you must know what this procedure entails to prevent it. We will explain the definition of “foreclosure” and the different types below:
What Is Foreclosure?
After homeowners fail to keep up with their monthly mortgage payments, the lender can recoup the investment in a legal process known as “foreclosure.” This occurs because the borrowers missed an agreed-upon number of payments or failed to live up to the terms of their contracts. When this is the case, the lender can seize the property and sell it to recover his or her losses.
When a lender and a borrower sign a mortgage contract, the property becomes the collateral that secures the loan. As such, the lender has the right to take possession of the property if the borrower defaults on the mortgage loan.
The Process
The foreclosure process begins after the homeowner misses a mortgage payment. The lender must send the borrowers a letter informing them that the lender did not receive their payment for the month. The borrowers may send the payment promptly, or they may miss a second payment.
After borrowers miss a second payment, the next step is for the lender to send the borrowers a demand letter. The demand letter is a much more serious document than the letter informing them of the missed payment, so it takes things to a higher level. At this point, the lender and the borrowers can make arrangements for the borrowers to make up their missed payments.
After 90 Days
If the borrowers do not make up the payments they missed, the lender sends a notice of default, and the foreclosure process begins. The lender sends the borrowers’ information to the foreclosure department, and this is the beginning of another reinstatement period. It is the homeowners’ second chance to make up the missed payments, and they have 30 days to do so. If the homeowners fail to make up the payments they missed, the lender will start foreclosure proceedings.
The lender files a lawsuit at this point in the county where the property exists. This is when the lender asks the court for permission to sell the property to recover his or her losses. The lender must provide a “petition for foreclosure” that explains the reasons that foreclosure proceedings are justified. The borrowers have the chance to offer a defense as to why they are behind on their payments at this time.
Also, the court may allow the lender to receive a deficiency judgment. A deficiency judgment allows the lender to sell the property for less than the outstanding balance on the mortgage loan. This leaves an amount less than the borrowers owed, so there will be a balance left over. If the court gives the lender a deficiency judgment against the borrowers, they will be required to pay the lender this balance.
What Is Non-Judicial Foreclosure?
A non-judicial foreclosure is a process that does not occur in court. Because the parties bypass a court proceeding, it does not take as long to complete. Several states allow non-judicial foreclosures.
How Does a Non-Judicial Foreclosure Work?
Foreclosure proceedings will not begin until after 120 days have passed. During that time, the lender sends the borrowers a breach letter that informs them that the lender will begin foreclosure proceedings against them unless they make up their missed payments. They will be required to pay the full amount of each payment plus interest and other costs.
If the borrowers are unable to make up their missed payments, they may receive the following letters depending on the state in which they live:
A Notice of Default
A notice of default offers you the opportunity to make up your missed payments, but you must do so by the deadline.
A Notice of Sale
If you fail to reinstate the loan, the lender sends a notice of sale. You learn the date that the sale will take place if you do not make up the payments in this letter.
A Notice of Default and a Notice of Sale
This combined document informs you again of the date that your property will go up for sale. You still have a chance to make up the payments at this point.
What Is a Judicial Foreclosure?
A judicial foreclosure takes place within the court system. The court decides whether or not the borrowers defaulted on the mortgage loan. If so, the court allows an auction to take place so that the lender can receive the money lent for the property.
How Long Does a Judicial Foreclosure Take?
A Judicial foreclosure can take much longer than a non-judicial foreclosure process. In general, it may take three months, but it can last as long as three years. This will depend on the state where the property is located. The lender cannot begin foreclosure proceedings until 120 days have passed.
What Happens After Foreclosure?
After foreclosure, your credit score suffers. If you need to borrow money again, you will need to go through the underwriting process. This is when the lender will examine your finances and determine if you are a good credit risk. They are ensuring that you will repay the loan they offer you, but when they find that you went through a foreclosure, they will, most likely, refuse to approve you for a loan.
This does not occur in every case. You may find someone who will offer you a loan, but they will charge you a very high interest rate. This will make it very expensive for you to borrow money.
If you need to search for a new job, the employer may do a credit check. Employers do this to determine whether or not you are a reliable person, but when they see a foreclosure on your reports, they may decide not to hire you. This can also occur when you fill out an application to rent an apartment. However, this situation will not last forever. A foreclosure will remain on your reports for seven years, but after that, you can begin to rebuild your credit again.
No one wants to go through a foreclosure, but you must know what this procedure entails to prevent it. We will explain the definition of “foreclosure” and the different types below:
What Is Foreclosure?
After homeowners fail to keep up with their monthly mortgage payments, the lender can recoup the investment in a legal process known as “foreclosure.” This occurs because the borrowers missed an agreed-upon number of payments or failed to live up to the terms of their contracts. When this is the case, the lender can seize the property and sell it to recover his or her losses.
When a lender and a borrower sign a mortgage contract, the property becomes the collateral that secures the loan. As such, the lender has the right to take possession of the property if the borrower defaults on the mortgage loan.
The Process
The foreclosure process begins after the homeowner misses a mortgage payment. The lender must send the borrowers a letter informing them that the lender did not receive their payment for the month. The borrowers may send the payment promptly, or they may miss a second payment.
After borrowers miss a second payment, the next step is for the lender to send the borrowers a demand letter. The demand letter is a much more serious document than the letter informing them of the missed payment, so it takes things to a higher level. At this point, the lender and the borrowers can make arrangements for the borrowers to make up their missed payments.
After 90 Days
If the borrowers do not make up the payments they missed, the lender sends a notice of default, and the foreclosure process begins. The lender sends the borrowers’ information to the foreclosure department, and this is the beginning of another reinstatement period. It is the homeowners’ second chance to make up the missed payments, and they have 30 days to do so. If the homeowners fail to make up the payments they missed, the lender will start foreclosure proceedings.
The lender files a lawsuit at this point in the county where the property exists. This is when the lender asks the court for permission to sell the property to recover his or her losses. The lender must provide a “petition for foreclosure” that explains the reasons that foreclosure proceedings are justified. The borrowers have the chance to offer a defense as to why they are behind on their payments at this time.
Also, the court may allow the lender to receive a deficiency judgment. A deficiency judgment allows the lender to sell the property for less than the outstanding balance on the mortgage loan. This leaves an amount less than the borrowers owed, so there will be a balance left over. If the court gives the lender a deficiency judgment against the borrowers, they will be required to pay the lender this balance.
What Is Non-Judicial Foreclosure?
A non-judicial foreclosure is a process that does not occur in court. Because the parties bypass a court proceeding, it does not take as long to complete. Several states allow non-judicial foreclosures.
How Does a Non-Judicial Foreclosure Work?
Foreclosure proceedings will not begin until after 120 days have passed. During that time, the lender sends the borrowers a breach letter that informs them that the lender will begin foreclosure proceedings against them unless they make up their missed payments. They will be required to pay the full amount of each payment plus interest and other costs.
If the borrowers are unable to make up their missed payments, they may receive the following letters depending on the state in which they live:
A Notice of Default
A notice of default offers you the opportunity to make up your missed payments, but you must do so by the deadline.
A Notice of Sale
If you fail to reinstate the loan, the lender sends a notice of sale. You learn the date that the sale will take place if you do not make up the payments in this letter.
A Notice of Default and a Notice of Sale
This combined document informs you again of the date that your property will go up for sale. You still have a chance to make up the payments at this point.
What Is a Judicial Foreclosure?
A judicial foreclosure takes place within the court system. The court decides whether or not the borrowers defaulted on the mortgage loan. If so, the court allows an auction to take place so that the lender can receive the money lent for the property.
How Long Does a Judicial Foreclosure Take?
A Judicial foreclosure can take much longer than a non-judicial foreclosure process. In general, it may take three months, but it can last as long as three years. This will depend on the state where the property is located. The lender cannot begin foreclosure proceedings until 120 days have passed.
What Happens After Foreclosure?
After foreclosure, your credit score suffers. If you need to borrow money again, you will need to go through the underwriting process. This is when the lender will examine your finances and determine if you are a good credit risk. They are ensuring that you will repay the loan they offer you, but when they find that you went through a foreclosure, they will, most likely, refuse to approve you for a loan.
This does not occur in every case. You may find someone who will offer you a loan, but they will charge you a very high interest rate. This will make it very expensive for you to borrow money.
If you need to search for a new job, the employer may do a credit check. Employers do this to determine whether or not you are a reliable person, but when they see a foreclosure on your reports, they may decide not to hire you. This can also occur when you fill out an application to rent an apartment. However, this situation will not last forever. A foreclosure will remain on your reports for seven years, but after that, you can begin to rebuild your credit again.
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