The foreclosure process differs by state, but there are some general steps to take if faced with foreclosure.
Foreclosure proceedings can begin after a single missed payment but most lenders have a grace period for late payment with a fee attached to it. It typically takes a late payment of 1 month for the alarm bells to sound off. After the second missed payment, you will receive phone calls. Many lenders will accept both late payments to bring the loan current and refuse partial payment checks.
Once payments fall 3 months behind, things will get more serious. Typically most lenders will begin the foreclosure process in 1-2 ways: judicial sale which requires the process go through the court system or power of sale, which can be carried out by the mortgage holder.
All states allow judicial sale, while only 29 allow power of sale. If your state allows power of sale, the loan papers will include a clause that says this method can be used. Power of sale is typically faster than the judicial route.
Judicial sale:
-The lender will file suit with the courts
-You’ll receive a letter from the court demanding payment
-You’ll have 30 days to responds with payment to avoid foreclosure
-At the end of the repayment period, a judgment will be entered and the lender can request sale of the property via auction.
-The auction is carried out by the sheriff’s office
-Once the property is sold, you are serve dwith an eviction notice by the sheriff’s office.
Power of sale:
-The lender will serve you with papers demanding payment
-After a waiting period, the deed of trust is drawn up that temporarily conveys the property to a trustee.
-The trustee will sell the house at public auction for the lender
-Many times the foreclosures are subject to judicial review to make sure everything is carried out legally.
-There is usually a requirement for the lender to post a public notice of sale for the auction.
Both types of foreclosure require that other involved parties be notified of the proceedings. If the homeowner took out another loan against the house with a 3rd party, the lender must be contacted and its loan amount must be paid from the auction’s proceeds. If the 3rd party isn’t paid, it can apply the mortgage to the new property owner. Many times, the lender will buy the property back and attempt to sell it at a later date.
There may also be deficiency judgments made against the borrower if the sale of the property doesn’t satisfy the amount of the loan. The entire difference between the two can be required, though some states only require that difference between the fair value of the property and the loan amount to be paid.
There’s one more type of foreclosure that’s almost obsolete called strict foreclosure. Once judgment is made on the lawsuit, the property is automatically assumed by the mortgage holder. Only Connecticut and Vermont will allow this practice.