Today on the blog we are going to discuss foreclosures and what they are.
A foreclosure plain and simple is when the home owner fails to pay the mortgage.
But more specifically it is when the owner forfeits all legal rights to the property. If said owner cannot pay off the debts or execute a quick sale of the property it then goes to a foreclosure auction and if they can’t get rid of the property that is when it goes back to the lending institution and they take possession of it.
To better understand what a foreclosure is it helps to think of it as a “borrower” not a “homeowner” because in this case it is actually a misnomer. A mortgage or, deed of trust is a loan agreement for the purchase of the price of the home excluding the down payment. These documents put a lien on the so called purchased property, making it a “secured loan”.
When a lender loans a person the money without any collateral say a credit card debit for instance, it can take you to court for non payment but very hard to collect money from you. Lenders often sell this kind of debt to collection agencies which are outside parties for pennies on the dollar and forgo their losses, this is an “unsecured loan”.
Secured loans are different because even though the lender may take a loss on the existent loan if you fail to pay, they can recover a large portion of it by seizing and selling off your property.
Here are the five stages of a foreclosure:
STAGE 1: Missed Payments
When the homeowner fails to make a mortgage payment because they can’t, whether it due to hardships such as unemployment, divorce, death or medical issues. If your in that tough situation it is vital that you talk to your lender as soon as possible, because there is a variety of options to help keep you in your home. Going through a foreclosure costs the lender a lot of money so they want to avoid it just as much as you would.
STAGE 2: Public Notice
After three to six months of missed payments the lender to the property records a public notice with the county’s recorder office stating that the borrower has defaulted on the mortgage. In most areas this notice can be known as a “Notice of Default (NOD)”. Depending on laws the lender might be required to notice the front door of the property, this notice is intended to make the borrowers aware they are in close quarters of losing rights to said property and potentially could be evicted from the property. In other words they are in danger of a “foreclosure”.
STAGE 3: Pre-Foreclosure
After the borrower has received a NOD from the lender, they enter a grace period known as “pre-foreclosure”. This time can be anywhere from 30 to 120 days, depending on local laws that the borrower can work out an arrangement with the lender, for example a short sale or pay the outstanding amount owed on the property. if said borrower pays off the outstanding amount during this phase, the foreclosure ends and the borrower avoids any home eviction and sale, if the outstanding amount is not dealt with then the foreclosure continues.
STAGE 4: Auction
If the outstanding amount is not payed out by the deadline, the lender or its said representative or trustee will set a date for the home to be sold at a foreclosure auction or trustee sale. The Notice of Trustee Sale (NTS) is recorded with the county’s recorder’s office with notifications delivered to the borrower either posted on the property or in the newspaper. At the auction, the property is sold to the highest bidder for a cash payment but the pool of buyers who can afford to pay cash on the spot for a home is quite limited, many lenders make arrangements with a borrower to take the property back, or the bank will buy the property back at the auction.
STAGE 5: Post-Foreclosure
If a third party doesn’t purchase the home at the foreclosure auction, the lender will then take ownership of it and it becomes bank owned property or real estate owned property. Bank owned properties are usually sold in one of two ways… More than likely they are listed by a local real estate agent as for sale on the open market or some lenders will prefer to sell their bank owned property at a liquidation auction.
So there you have it…. the information on foreclosures, so in other words….
MAKE SURE YOU PAY YOUR MORTGAGE! Haha!
I hope you enjoyed the read and learned a few things.