Thursday, 21 August 2008 09:32

What is the foreclosure process?

 

What is Foreclosure?

Foreclosure is the legal process that gives mortgage lenders the right to take possession of a property secured by a deed of trust, in order to recover the amount owed to them. Typically this process begins when the borrower on the mortgage note defaults on the loan payments and the lender files a NOD (notice of default). This notice of default is a notice to a borrower that he/she is delinquent in payments and that if delinquency is not paid within a certain period of time, foreclosure proceedings may be commenced. The NOD marks the beginning of the preforeclosure process. Preforeclosure is the time frame that begins with the NOD and ends with the sale of the property. Every state has different laws governing how long this time frame should be, in some states it actually can be as long as 6 months. This preforeclosure process can take on two forms: judicial vs non judicial foreclosures.

Judicial Foreclosures

Judicial foreclosures are those that are processed through the courts.  A complaint is filed, which is call the notice of Lis Pendens, which is Latin for, "suit pending." This complaint addresses two things:

  1. What the debt is.
  2. Why the default should allow the lender to foreclose.
The homeowner will receive notice of this complaint and will have the option to "show cause," on why the property should not be taken. If the borrower elects not to show up to court or loses the hearing, a sale date will be set and the property will be auctioned. If the property does not sell at the auction, the house will be turned over to a REO broker and put on the market.

Non-Judicial Foreclosures

Non-judicial foreclosures are process outside of the courts, however they must follow state statutes on foreclosure proceedings. In this case when the loan default occurs, the homeowner will be mailed a default letter, and a Notice of Default will be filed at approximately the same time. If the borrower does not cure the default, a Notice of Sale will be mailed to the homeowner, and posted in public places, recorded at the county recorder's office, and published in area legal publications. The sale of the property will once again be done as an auction and if the property does not sell, it will be put on the market by an REO broker.

Stopping or ending the foreclosure process

There are four ways that the foreclosure process can end:

  1. Cure the default 
  2. Work with your lender to resolve the default through there many loss mitigation programs
  3. The sale of the property
  4. A third party buys the property at the public auction
  5. The lender takes ownership of the property and re-sells it on the open market

Related Resources


Wikipedia - Foreclosure page

Legal Dictionary - Definition of notice of default

Ezine Articles - Preforeclosure

RealtyTrac.com - The foreclosure process

Apply2Save.com - Information of state foreclosure laws
Last Updated ( Thursday, 21 August 2008 10:42 )
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