Understanding the Foreclosure Process

What is Foreclosure?

Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's failure to comply with an agreement between the lender and borrower called a “mortgage" or "deed of trust".

Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien."

Why Lenders Foreclose

Lenders will begin foreclosure proceedings for the following reasons:

1. No payment/excessive late payments
2. Transfer of title without notification or permission
3. Threat to Junior Mortgagee if First mortgage is delinquent

It is important to understand that banks and mortgage companies DO NOT want your house. They want the payments that have been agreed upon – they do not want to take a property into their inventory. This is why they will make all attempts to work out a solution to your current payment difficulties before beginning foreclosure procedures.

Foreclosure Process

The foreclosure process is actually a two-part action: Pre-foreclosure and Formal Foreclosure.

Pre-Foreclosure:
1. The homeowner misses a few payments.
2. The lender sends the homeowner late notices. If they fail to receive a response or bring the payments current, the lender attempts contact (by phone or mail) to rectify the situation.
3. If payments are not made, the loan is transferred to the Loss Mitigation department, and a payment arrangement is proposed.
4. If the payment arrangements are not accepted and/or adhered to, the lender invokes the acceleration clause and demands payment in full.

Formal Foreclosure:
1. The lender transfers the collection to a law firm, and begins formal foreclosure proceedings.
2. Legal notices regarding the attempt to collect a debt are published in local publications.
3. The allotted timeframe elapses without an agreement on a satisfactory financial solution, and the date for the auction is set.
4. Legal notice and advertisements of the actual foreclosure sale are posted in local publications.
5. On the date of auction, the house is sold to the highest bidder. If the house is not sold, the lender takes possession of the property.
6. If the homeowner is still living in the property, the lender or new owner can begin eviction proceedings.
7. If the house is sold for less than is owed, the homeowner is notified of the outstanding debt (a deficiency judgment).

Understanding the full foreclosure process is as important as fighting it. It is important to maintain communication with your lenders to be aware of any and all fees, deadline dates, and rectification options you have available.