The Foreclosure Process - Step By Step
The foreclosure process, a term often used in today's economy is, simply when a mortgage holder or a
lender decides to take legal action over the borrower, when the contract terms of the lending
Normally, in such agreements, the law agrees that when the borrower is failing with the payments,
is liable to take possession of the property, to avoid being at a loss with the deal and recoup the
There are several legal procedures that are taken along this process but it all starts out with the
of a promissory note, which completely gives the lender total security under the mortgage put upon a
When the borrower fails to meet the stipulated payment terms, the respective loan ceases to generate
for the lender or Mortgage Company. Since the cash flow is not running thru that mortgage, the
entered in a stage where it is considered a non performing process. At that point, the mortgage
start a foreclosure process which will follow those three steps:
- Pre-Foreclosure. At this stage, the foreclosure process per se has not been
yet. We are at a stage where the borrower fails a payment and the law now considers the individual
at legal fault towards the lender. After two weeks of being late, the borrower is now considered
late" and a new process is initiated. At this stage, the lender company often calls the borrower or
late payment note and tries to understand whey he is late.
If the borrower continues to be at fault towards the loaner for 45 days to 60 days, the mortgage
send a "demand" notification, using registered mail
The borrower is then, officially informed that he is breaking the contract and the term foreclosure
the first time, mentioned in the lender's communication. The borrower will be given information on
stop the foreclosure process and is encouraged to communicate with the lender.
Around the 90th day, the mortgage company's lawyers have started to study the process and taking
action, redirecting the lender's claim to state court or contacting the trustee.
There are two types of foreclosure processes that can be initiated. Judicial processes and
In the first, there is a clear intention from the lender to take legal action on the borrower at
lender will then be required to show evidence to the court of law. The judicial foreclosure method
used in states where the lien theory is predominant. In those cases, the lien property can be used
compensate the lender, when the borrower is at fault.
The second type of foreclosure process is non-judicial.
In the so called title theory states, this process includes the use of a deed, rather than a
secure the contracts. In the trust deed, a third party trustee is often assigned to receive the deed
trust and to help the lender sell the borrower's property, if the borrower fails to meet the
Before the beginning of the actual foreclosure process, the borrower can always try to pay the debts
safe keep his home. If the borrower pays his debts, the lender can, at some points, not only
official proceeds but also reinstate the loan.
- The Auction Sale. When you reach the auction phase, the foreclosure process per
already begun. The pre phase is officially shut down and now begins the process of auctioning the
property and try to get back the money from the loan. The auction process takes place at the
the highest bidder takes the house. The homeowners' rights to the interest in the property are
the auction sale, except in the so called redemption periods.
- The redemption period. How long this period lasts is dictated by state law.
happy owner has now full access to ownership rights but his owning of the property is only technical
during a period of time, which is defined by law, the late borrowers can still have the last chance
redeem themselves on the late actions and try to gather the necessary amount of money to buy the
from the new owners. In this Redemption period, the new owner is legally obliged to sell the house,
late owner can reinstate the missing payments to the lender.
Not all states have redemption periods and it actually depends on weather the states defends the
lien or the
title theory. In most pro-lien states the redemption period is instituted and in most title states,
redemption periods are not mandatory but are also an option.
They range in duration from several days to over a year.
- The final phase. It's called the Post- Foreclosure and at this stage, the
irrevocably in the total ownership of the new owner or the mortgage institution, if it was not sold
The redemption period has come to an end and the borrower was not successful in paying the total
the property ownership was transferred to the lender. This property, is not causing any interest to
and is now part of the lot, and called a REO (real estate owned).
Those properties are obviously, most often listed on auction sales or with any real estate agent.
uncommon to go to a real estate agent and find bank owned homes listed on sale; the purchase process
equal to buying a 'regular' home. The process is simple and can be done with the help of your real