Everything You Need To Know About the Process of Foreclosure

Written by: Michael Thomas

When a homeowner stops paying the mortgage for his or her property, for whatever reason, this is when foreclosure takes place. Specifically, it is a legal process where the owner is forced to give up his or her property rights. Once foreclosure process begins, the homeowner then has the opportunity to pay what is owed to the lender, or sell the property, and if this does not occur then the property will unfortunately be put up for auction. There are five stages that foreclosure may be broken into. The five stages of Foreclosure include:

Stage One: Missing Mortgage Payments:
This is always the start of the entire process of foreclosure, and it is often because of issues such as divorce, death, unemployment, as well as an abundance of other hardships. If you happen to experience these hardships, it is extremely important to get ahold of your lender as soon as you possibly can. This way you can discuss options to avoid losing your home. In some cases, the mortgage amount may exceed the home value, this is referred to as the property being “underwater.” Regardless of the reason, the borrower isn’t able to meet the terms of the loan and then the process of foreclosure begins.

Stage Two: Public Notice or NOD:
If mortgage payments still aren’t paid after three to six months, the lender issues a public notice that indicates that the borrower has stopped paying their mortgage. This is a piece of paper that is often placed on the front door of the property, but this all depends on the state’s laws. This process can also be referred to as a Notice of Default. The public notice is meant to prove that the borrower is in extreme danger of losing all their property rights and will possibly become evicted.

Stage Three: The period of Pre-Foreclosure:
Pre-foreclosure is the grace period that the borrower enters after receiving a public issued notice. And depending on the state’s local regulations, this period could be anywhere from a month to four months. During this period of time,the borrower may work out a deal with the lender to pay the amount that is due. And as long as the amount is paid off, foreclosure is avoided, but if it isn’t paid then the process will in fact continue.

Stage Four: Auctioning Off the Foreclosed Property:
After the grace period has passed and the mortgage amount due, still hasnt been paid, that’s when the lender puts the property into a foreclosure auction. After the lender has set the date for the foreclosed property to be auctioned off, the lender then goes to record it at the County Recorder’s Office. Once the property has been recorded to be auctioned off, the homeowner then gets notified, as well as a piece of paper gets posted on the front door of the property. The foreclosed property may even get posted in the newspaper. And in most states, homeowners, also known as borrowers, have the “right of redemption.” This means that he or she has the opportunity to gather the money owed up until the exact minute that the property will get auctioned off. However, at the auction, the foreclosed property is sold to the person with the highest offer and can pay in cash. And the amount of buyers that can pay for a property with cash in hand is quite small, so the vast majority of the time an agreement is made between the lender and borrower.

Stage Five: Post-Foreclosure
The fifth and final stage, post-foreclosure, is what happens after the auction and after the property gets foreclosed. If nobody purchases the property at the foreclosure auction then the lender takes over the property, it then becomes referred to as a bank owned property, or depending on the situation, a real estate owned property. More often than not, bank owned properties are sold by a real estate agent listing the foreclosed property for sale on the open market.

The Two Types of Foreclosure:
There are also two different types of foreclosure: Judicial and Non-Judicial. Depending on whether the state is a mortgage state or a deed of trust state, the state can either follow a judicial foreclosure process or a non-judicial foreclosure process. However, most of the time states follow some type of judicial foreclosure process. The obvious difference between the two is that one involves a civil lawsuit and the other one does not. The judicial foreclosure process also can take four to eight months to complete, while the non-judicial foreclosure process can take up to a year to complete. It’s also extremely important to remember that neither judicial or non-judicial foreclosures are completely set in stone and each state has set its own laws in regards to foreclosures.

Buying a Foreclosed Property:
Buying a foreclosure involves a little extra effort, as well as lots of research and patience but can also be a fantastic opportunity for buyers. Often buying a foreclosed property can work out quite well for both the buyer and the previous owner, who will more than likely be heartbroken. However, who couldn’t jump at the opportunity to snatch a lower priced house that’s requires little to no needed work done! Buying a foreclosed property can be a great choice whether you’re looking to buy a house to live in for many years, or simply one to flip and sell to make a profit, you may want to look into purchasing a foreclosed property. It’s important to try to buy a foreclosed property that’s in the process of pre-foreclosure, but this involves approaching the grieving homeowner before the house ever goes up for sale and offering to buy it right there. You may still get to purchase a foreclosed property after it becomes a lender-owned property, but that could take many months, as well as many years depending on various work that needed to be completed. Pre-foreclosure seems to be the best, and the fastest way to purchase a foreclosed property.


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