How Foreclosures Work

One of the biggest issues in the real estate market is foreclosure. Not everybody understands the meaning of foreclosure but it basically means that if you have a loan secured against your home but fail to keep up the payments, then the financial institute can legally take possession of your home. This is then sold to pay off your debts. This process is what is known as foreclosure. It is very important that you research your states laws thoroughly if you are ever faced with foreclosure.

You do not need to have missed lots of payments and owe thousands of dollars as the proceedings can start even after just missing one payment. However it is very unlikely for proceedings to start immediately after you miss the first payment. The lenders usually wont start getting worried until about 1-2 months after the payment was expected. If you miss two payments then you will start getting phone calls from the lenders to find out what is happening.

The foreclosure will begin after you are 3 months behind and this will usually be done by either doing it all through the courts (Judicial sale), or entirely through the mortgage holder (Power of sale). Not all states allow a power of sale but for the states that do, it will be shown in the clause on the loan papers.

• Judicial sale

The lender will first have to file a suit with the courts before anything else can begin. Once this has been completed you will receive a letter from the courts demanding payment of how much you owe plus additional charges. You will usually be given 30 days from the date of the letter to pay everything you owe and to avoid any further action being taken. If you then still fail to pay then the lenders can request your house to be sold at auction which is usually done a few months later by the sheriffs office. Finally you will be served with an eviction notice when your house is sold in which you need to leave immediately.

• Power of sale

If this is the method used then you will receive papers from the lenders demanding payment. If you fail to pay within a set amount of time then a deed of trust is drawn up that conveys the property to a trustee. The trustee will then sell the property at auction on behalf of the lender. To make sure that everything is done legally it will usually go through a judicial review.

Whichever type is used, you will always know what is going on whether it be by phone calls or letters. It is well known that the lenders themselves will actually buy the house back in which they can then sell at a later date on the real estate market. If you feel like you can not for some reason keep up with payments then it is very important that you communicate with your lender in an appropriate manner. If you get in touch with them then they will usually try to work everything out to make it better for the both of you.