Understanding what it means is the most crucial thing you’ll ever have to do if you want to stop foreclosure. You MUST know what you are up against and how it actually works — especially if you’re already behind payments —so you can find your way out.
I know foreclosure can be frightening, especially for someone who does not have any idea what it really means. Keep on reading to get an idea about how it works and how you can get out of it.
What is Foreclosure, anyway? – It is a legal procedure wherein the “lender” takes back property when the homeowner is too far behind their mortgage or when they stop paying it completely. It is a very serious business. It can be stressful and frightening for some, that’s why you have to be prepared for it. Having a property that is about to be foreclosed is not the end of the world, though. There are still situations that are way worse than that — trust me, I’ve seen a lot. But of course, you have to still take it seriously or you might lose your home.
The more information you have about the process, the higher the chances of you getting out of the situation. So, let’s tackle a couple more things about it …
The Basic Stages of Foreclosure
Foreclosure works differently in different states around the country. There are a few stages that are vital to any foreclosure process. There’s Judicial Sale and also Power of Sale. Let’s tackle them both. In either scenario, foreclosure typically doesn’t go to court until 3-6 months of delinquency or missed payments. Most often than not, a lender sends out many notices that you are in arrears — overdue, or you’re way behind your payments. Let’s tackle both of them and learn how it works.
- Your lender has to file a suit in the court system
- You’ll get a notice from the court saying you need to make payments
- If the loan is valid, you’ll be given 30 days (subject to extension) to bring payment to court
- If you do not make the payment, a judgment will be given and the lender can request the sale of your property — mostly through auction
- Lastly, once the property is sold, a sheriff will serve an eviction notice and they can force you to immediately vacate the property
POWER OF SALE (also known as NON-JUDICIAL FORECLOSURE)
- Your lender can send you a notice demanding payments — they don’t necessarily have to file a suit but nonetheless the process will still be subject to judicial review
- After the entrusted waiting period has passed, a deed of trust is drawn and the control of your property is then transferred to a trustee
- The trustee then will have the power to sell your property to the lender at a public auction — though they will still have to give you notice
Anyone who has an interest in the property MUST be notified during either type of this foreclosure. For example, any contractors or banks with liens against a foreclosed house can collect from the proceedings of an auction.
WHAT HAPPENS AFTER FORECLOSURE?
After a foreclosure is completed, the loan amount is paid off with the sale proceeds. And sometimes, if the sale of the property at auction isn’t enough to pay off the homeowner’s loan, a deficiency judgment can be issued to them. A deficiency judgment is where the bank gets a judgment against the homeowner for the remaining funds owed to them. Meaning, the homeowner will still be in debt and will still have to pay the lender.
Some states have a limit on the amount owed in the deficiency judgment to the fair value of the property at the time of the sale, while other states will allow the full loan amount to be assessed against the homeowner.
Of course, the best way to stop this is to make sure you’re paying on time and in full in the first place. But if you’re already in the situation, one way to consider is by selling your house to a reputable home buying company. A credible home buying company can help you negotiate with banks and help get discounts off the amount owed to avoid having to carry out a foreclosure. Heck, if they’re really that good, they can even help you eliminate it, even if your house is worth less than you owe.