What happens if home foreclosed

Foreclosure can also happen when the homeowner fails to pay their property taxes or homeowners association fees. When it comes to understanding foreclosure, there are three important definitions to know:. Foreclosed homes and REOs are usually of particular interest to buyers, since these properties typically come at a lower price than comparable, non-foreclosed homes.

After the foreclosure, the mortgage lender will take control of the property and attempt to sell it to recoup the money it lost from the mortgage default. The lender is allowed to take back the home because a mortgage is a secured loan. That means the borrower guarantees repayment by providing collateral.

In the case of a mortgage, the home is used as collateral and, upon signing closing documents, the borrower recognizes that the lender has the right to foreclose on the home if they default on the loan. This is also known as putting a lien on the title of the home.

Once the mortgage is paid off, this lien on the title of the home is removed. At the time of getting their mortgage, most people are typically in a position to successfully make payments on their loan. Many times, a person facing foreclosure has experienced a life event that changed their financial circumstances. Because of this, they can no longer afford their monthly payment. Examples of such events include:. It could also be something as simple as an increase in their mortgage payment.

For example, those with an adjustable-rate mortgage may have an increase in interest, which will raise their mortgage payment.

Or, if there is an escrow shortage due to a rise in property taxes or insurance premiums, the escrow payment will increase. And since property taxes and homeowners insurance are typically paid through the monthly mortgage payment, the monthly payment will rise as well. These instances are not uncommon with mortgages, and they depend on the terms of the mortgage in question. While most homeowners go into foreclosure because they cannot make their mortgage payment, some enter into foreclosure because they intentionally miss their payments.

This often happens when their home is underwater and they no longer have any financial motivation to continue to pay their mortgage. When a home is underwater, the amount owed on the mortgage is more than the home is worth.

When they no longer have equity, some homeowners see no reason to continue making their payments. Whatever the type of foreclosure and whatever the state, the process generally involves five stages. No matter the reason a homeowner goes into foreclosure, the process begins the same way: with missed payments.

Once the homeowner begins missing payments, they are no longer upholding their responsibilities of the loan, and the lender can come to collect. In most cases, lenders are willing to work with the homeowner to restructure the loan and lower or delay payments.

If the homeowner needs additional assistance, they may find it through:. There are steps you can take to avoid foreclosure. Also called a Notice of Default NOD , or lis pendens suit pending , the public notice is a written notification to the homeowner that the lender will pursue legal action if the debt is not paid. Once the lender records the public notice, the foreclosure stage begins, and the home enters the early stages of repossession.

At this point, the homeowner typically has 90 days to take action. If they want to avoid a foreclosure sale and avoid eviction, they have a few options:. A short sale is a voluntary sale of the home before foreclosure.

When that happens, all of the proceeds from the sale go to the lender and the sale cannot happen unless the lender approves it. Another way for both parties to avoid foreclosure is with a deed in lieu of foreclosure. In this transaction, the homeowner voluntarily signs the deed over to the lender or bank and is released of all mortgage obligations.

The lender may benefit by avoiding the costs and additional time involved in the foreclosure process. However, it may only approve a deed in lieu of foreclosure if the homeowner cannot sell the home in a short sale and there are no other liens on the property. Even then, the lender may not accept this offer. If the homeowner cannot sell the home in a short sale, make up the late payments or pursue a deed in lieu of foreclosure, the home will then go to public auction.

When the time comes, the mortgage investor or its representative, the trustee, will put the home up for auction. Also known as a foreclosure sale, the auction is open to the public and will often take place on the steps of the county courthouse, in a conference room or convention center, or even online.

Since the mortgage investor, terms of the loan and specific state guidelines control the policies of the auction, every auction will be different. However, you can expect similar processes and requirements. At the auction, the minimum bid is normally set at the balance owed on the loan, and the foreclosed home is sold to the highest bidder. That person must pay cash for the full amount or a significant deposit immediately.

Though the highest bidder is the winner of the auction, they may not necessarily win ownership of the home. Because missed payments top the list of negative events, your credit score will suffer before the foreclosure process even begins. Natalie Campisi is a Los Angeles-based reporter who covers mortgages and housing news for Forbes Advisor.

Previously, she was the senior mortgage reporter and analyst for Bankrate. Select Region. United States. United Kingdom. Natalie Campisi. Forbes Advisor Staff. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations. What Is Foreclosure? In a judicial foreclosure, the lender files a lawsuit to initiate a foreclosure. The borrower goes to court to fight the lawsuit; if they lose the house will go into foreclosure and can be sold at auction.

Non-judicial foreclosures rely on power-of-sale clauses in the mortgage or deeds of trust to recoup the balance owed if the borrowers stop making payments. There is no court hearing, and the process generally is faster than under a judicial foreclosure. The mortgage clause authorizes trustees who are appointed by the lender to sell the home to pay off the balance. The lender is obliged to follow out-of-court steps laid out by the state and the mortgage agreement to begin the foreclosure process.

When Does Foreclosure Begin? Foreclosure Timeline In both judicial and non-judicial states, the initial process is typically the same, beginning with your first late monthly mortgage payment. Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article. Thank You for your feedback! Something went wrong. Please try again later.

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Past performance is not indicative of future results. A foreclosure will also hurt your credit scores. Your credit reports will show the foreclosure starting a month or two after the lender initiates foreclosure proceedings, and it will stay on the report for seven years. The act of taking back your home is the last resort for lenders who have given up hope of being paid.

The process is time-consuming and expensive for them although they can try to pass along some of those fees to you , and it is extremely unpleasant for borrowers.

Fortunately, you can follow some tips to prevent foreclosure:. Bank of America. Consumer Financial Protection Bureau. Department of Housing and Urban Development. Accessed Feb. National Credit Union Administration. California Courts. California Department of Real Estate.

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