Understand The Foreclosure Process – Difficult Times Demand Detailed Information

The foreclosure process is the action that a bank takes when a homeowner defaults on a mortgage. The process allows the bank to gain back as much money as they can from the sale of the home in order to recover the money that was originally loaned to the homeowner.

Foreclosure occurs when the homeowner stops paying their mortgage for any reason: death, illness, and loss of employment are common reasons. Once a homeowner stops making payments, their property is at risk of being foreclosed.

This is a very distressing time for the homeowner. By taking the time to understand what the foreclosure process entails, it will help alleviate some of the anxiety and frustration. The first thing a homeowner facing foreclosure needs to do is contact the bank and learn about their foreclosure process. Here are the three different types of foreclosure processes:

Power of Sale

This type of foreclosure is allowed by most states as long as there is a “Power of Sale” clause in the mortgage. Once the homeowner has defaulted on mortgage payments, the lender sends them notices demanding payments until an established waiting period has been met, which is typically 90 days. At that time the mortgage company carries out a public auction typically held in the county in which the property is located in. A Power Sale is also known as a “Statutory Foreclosure.”

Strict Foreclosure

Only a small number of states allow a “Strict Foreclosure.” The lender files a lawsuit against the homeowner due to the default in the payments. The court may grant the homeowner a specific time-frame in which to bring the debt current. If the homeowner is unable to perform, then the property goes directly to the mortgage holder.

Judicial Foreclosure

All states allow this type of foreclosure, and some even require it. The lender files suit with the judicial system once the homeowner has defaulted. The homeowner is notified by mail demanding payment and has 30 days to respond with a payment in order to stop the foreclosure process. If payment is not made within the time-frame, the bank proceeds with foreclosure and holds a publicly held auction where the highest bidder receives the home.

Foreclosure laws vary from state to state, which is why it is important to contact the bank who holds the mortgage to learn not only what the bank’s procedures are, but what laws govern them. Most states also have information available either on their website or by contacting them by telephone.

Once the homeowner has contacted the bank and has become educated on the process, the next step is to continue discussions with the bank to learn if there are any options available to avoid foreclosure. The bank may be interested in re-structuring the loan, refinancing, permitting a short sale, or accept the deed in lieu of the foreclosure. The foreclosure process is an expensive option for the bank to carry out, so if there is an alternative solution, they may be interested in moving forward in a different direction other than foreclosing.

In short, by understanding the foreclosure process and keeping open communication with the bank that holds the mortgage, a homeowner may be able to initiate other ways to get out from under the burden of the current mortgage. Foreclosure does not have to be imminent if you educate yourself and stay informed.


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