The Truth about Foreclosure

One of the biggest hits to our economy and morale has been the staggering rise in home foreclosures all across the country. Millions of families who are unable to pay the increasing mortgage payments on their homes are now being threatened with foreclosure by their banks or lenders. Foreclosure is the process in which the government takes possession of the property in question, sells it at a public auction, and then uses the profits to compensate the lender.

 

When Does the Foreclosure Process Start?

A home loan is considered delinquent thirty days after the original due date. During this time, the lender may send a notice of default and contact the homeowner in an attempt to rectify the situation. If the account is not brought current within two to three months, the lender typically begins the acceleration process, or formal proceedings, to start foreclosure on the property.

 

The Acceleration Process

During the acceleration process, the lender will typically send certified mail, notifying the homeowner that foreclosure is the next step. Lenders usually will not accept partial payments at this point and may issue a final date for the homeowner to get current on the account.

As a side note, while lenders are less than willing to accept partial payments at this point, it is important to keep an open line of communication during the process. If the homeowner can prove economic hardship, the lender may offer additional time to satisfy the loan or assist in refinancing the property if there is a decent amount of equity involved.

 

Formal Foreclosure Proceedings

If the account is not made current during the acceleration process (or ninety days after the original due date), the homeowner will be issued a notice of sale, which is also filed at the local county recorder's office. In cases in which the property is abandoned or flagged during this time, the bank will immediately seize the property by changing the locks and disconnecting the utilities.

Upon issuing a notice of sale, an attorney for the bank will advertise the property in the local papers for three to four weeks, giving a date and time the property will be sold at auction (or through a judicial process, depending on the state). The auction is typically held in the county courthouse and is open to the public.

The property is then awarded to the highest bidder-which is usually the original lender. The original lender does this in an attempt to sell the property at market value and recoup some of the losses down the road. However, the homeowners still have a chance to save the property at this point, as most states have a grace period in which the property can be redeemed by offering up the balance in full.

 

Avoiding Foreclosure

There are a variety of methods in which a homeowner can avoid the foreclosure process. As previously mentioned, if the owner has a significant amount of equity in the property, the lender may be willing to refinance the unpaid balance on to the back end of the loan.

If refinancing is not an option, the homeowner can either sell the property at full market value or at short sale if no one is biting. A short sale occurs when the bank accepts a purchase price from a third party that is less than the amount due on the loan. In other words, the lender is agreeing to cut his or her losses with the original homeowner by selling the property at a discounted price.

Finally, a homeowner can temporarily stop foreclosure proceedings by filing a bankruptcy. Filing a bankruptcy stays a foreclosure proceeding and gives the homeowners a chance to catch up on back payments within a reasonable time. However, the homeowner must continue to make the monthly payments on time, or the bank will be given the right to continue the process.

 

I Am Facing Foreclosure. What should I do?

The first step in dealing with a foreclosure is to establish an open line of communication with the bank. Be sure to explain why the payments have fallen behind, and ask for your options in bringing the account current. If there is no possible way to catch up on the amount in default, contact a Realtor to sell the property or an attorney to start bankruptcy proceedings immediately.

Foreclosure does not have to be a death sentence for you and your family, especially if you still have the financial means to pay off your debts. Sometimes individuals just need a bit more time to pay any bills that may have accumulated from unexpected financial emergencies, such as those that arise from medical bills. In this case, consider filing for bankruptcy to get that precious time and protect your home from foreclosure.