A common foreclosure definition is "taking possession of a mortgaged property due to the mortgagor's failure to keep up mortgage payments."
In other words, if a homeowner misses multiple payments after receiving notices of delinquency, the lender can seek court permission to sell the property.
This guide will help you understand foreclosure and related terms, common foreclosure laws, your rights, and how legal representation can help you avoid foreclosure.
Foreclosure involves a lot of different legal terms, some of which you may not have heard before. Here's the most important foreclosure definitions to be aware of:
Acceleration: A lender's demand that the borrower immediately settle the loan's balance. Lenders can demand acceleration when the borrower misses multiple payments. Acceleration must occur before foreclosure can begin.
Clause: A provision in a legal document, such as a property purchase agreement.
Deed in lieu of foreclosure: An agreement allowing a borrower to settle debt by surrendering property to the lender, instead of going through foreclosure.
Deficiency judgment: A court judgment declaring the difference between the amount owed to a lender and the amount received in a foreclosure sale.
Short sale: The sale of a house facing foreclosure that allows the borrower to escape the mortgage, even if the sale doesn't generate enough money to repay the entire loan.
State laws govern much of foreclosure proceedings, including your rights, defenses, and possibilities of receiving a deficiency judgment. Some of the most common foreclosure laws include:
Lenders can begin foreclosure after borrowers miss a single mortgage payment.
Lenders must send notices of intent to begin foreclosure.
Depending on the state, foreclosure may be a judicial or nonjudicial process.
In a judicial foreclosure, borrowers have a period to respond to the notice of the lawsuit, after which a notice of intent to sell will be issued.
In a nonjudicial foreclosure, lenders can fight the process by filing a lawsuit.
In some states, foreclosed homeowners can buy back their homes during a redemption period.
If homes do not sell, lenders assume ownership.
If homes do not sell, borrowers can stay in them without payment until they receive eviction notices.
Lenders can often receive deficiency judgments to recoup sums not recovered by property sales. Some states do not allow deficiency judgments in certain circumstances.
When facing foreclosure, it's vital that you understand your rights. These rights will vary according to your jurisdiction and circumstances, but may include the following:
You may be able to file a lawsuit to negotiate more time if you were not notified of the pending foreclosure in the proper way.
You typically have the right to catch up on mortgage payments and avoid foreclosure if you do so before a deadline.
You may have the right to stay in your home for a predetermined period after its sale.
If your area has a redemption period, you have the right to buy back your home.
As foreclosure procedures vary, it's a good idea to consult a property law attorney to learn more about your rights.
You may be able to avoid foreclosure even after proceedings have commenced. Acting quickly may protect your credit rating and even save your home. Your options include:
Negotiating with your lender to make partial or late payments or change your loan's terms.
Seeking government assistance through the Home Affordable Modification Program.
Filing for bankruptcy.
Selling your home yourself.
Surrendering your home to your lender.
However, hiring a foreclosure lawyer is the best way to minimize the effects of foreclosure or avoid it entirely.