A foreclosure occurs when a homeowner fails to make mortgage payments to the lender. The bank, credit union, or other financing company takes possession of the home and sells it to recover its losses. A foreclosure can hurt your credit rating and make it difficult to buy a home in the future, but understanding how the foreclosure process works can help you prepare for it.
The lender can also start foreclosure proceedings. There are no laws about how many mortgage payments you can miss before the lender can foreclose on the house. According to California bankruptcy attorney Richard Glenn Elie, the bank's policies will decide how quickly you receive written notice that the bank intends to foreclose.
Pre-foreclosure: In this stage, the lender sends a notice of default to the homeowner. This document details the amount you owe as well as the amount you must pay by a specific date to stop the foreclosure.
Court appearance: In many jurisdictions, you will appear before the court with your creditor. A judicial foreclosure (one that takes place in court) requires the judge to sign off on the foreclosure before the bank can take put it up for auction.
Repayment period: You have until 5 days before you home is auctioned to pay the creditor the past amount due and any fees. If you succeed, the foreclosure process is over and you get to stay in your home (as long as you continue to make on-time payments).
Auction: If you don't make the payments, the bank auctions off your house. If you stay in the property, the people who buy it can evict you.
If someone bids successfully, they take ownership of the property after they pay the creditor. You must then leave the home because it belongs to the new owners. If the home doesn’t sell at auction, it becomes an REO (real estate owned) property. This means that the bank or lender owns it and can attempt to sell it through a second auction or some other method.
You can alsofile a request for preliminary injunction, which allows you to present a defense against foreclosure. This strategy can delay the process until you can make your payments.
There are also several arrangements that you can work out with your creditor:
Each of these options requires the bank to agree. In many cases, however, these alternatives are more advantageous for the creditor than the foreclosure process.
If you're facing a foreclosure, seek the guidance of a real estate lawyer. Your attorney can help you find new options and assert your rights in court.