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Many people in the current economy have gone through or know someone going through a foreclosure. A foreclosure is a process where a lender is allowed to recover the amount that is owed on a defaulted loan by taking ownership of the home or selling it.
RealtyTrac has stated that there was a 7% increase of foreclosures from the last quarter of 2009 and a 16% increase from the first quarter of 2009. That means that one out of every 138 homeowners is facing foreclosure. If you are going through a foreclosure, I want to make sure you understand the process. There are typically six phases to a foreclosure.
Phase 1: Payment Default
Once you miss one mortgage payment your lender will send a missed-payment notice. Most mortgage payments are due on the first, but many lenders offer a grace period until the 15th. After the 15th you would most likely receive a late-payment fee and a missed payment notice. If you miss two payments you will receive a “demand” letter. At this point some lenders are willing to work with you to make arrangements to catch up on your payments. Normally, you would have to remit the late payments within 30 days of receiving the letter.
Phase 2: Notice of Default
After 90 days of missed payments a notice of default is sent. Depending on your states regulations this notice may be posted to your front door or sent to you through the mail. Once this notice is sent your loan is handed over to your lender’s foreclosure department. You borrower is notified and will record this notice. You may be granted a reinstatement, this would entitle you to 90 days to settle payments and have the loan reinstated.
Phase 3: Notice of Trustee Sale
A notice of trustee’s sale will be recorded in the county of the property after the loan has not been caught up-to-date after 90 days of notice of default. Your lender may publish a notice in the local paper for up to three weeks indicating that the property will be publicly auctioned. The information this advertisement will have is you name, the notice, a legal description of the property, the address, time, place and date of the sale.
Phase 4: Trustee’s Sale
The opening bid is based on the value of the outstanding loan, liens, unpaid taxes and any cost of the sale. With all the necessary requirements a bidder will be awarded a “trustee’s deed upon sale” after being confirmed the highest bidder. At this point the property will be owned by the purchaser and they are entitled to immediate possession.
Phase 5: Real Estate Owned
If the property is not sold during the trustee’s sale (auction), the lender becomes the owner and will attempt to sell the property through a broker or through an REO asset manager. These properties are referred to as “bank-owned”. Lenders may remove liens and other expenses to make the property more attractive.
Phase 6: Eviction
You may stay until the home has been sold either through a trustee’s sale or as an REO property. You will be sent an eviction notice demanding that any people must vacate and remove any personal belonging at that time. After the provided time, a local sheriff will visit the property and remove any remaining belongings. Belongings will be placed in storage and may be retrieved for a fee later.
Many lenders will work hard to make arrangements for you to get caught up on a loan and avoid foreclosure. The problem is that once a borrower misses a payment it becomes more difficult to catch up on multiple payments. If you have just started a new job after a period of unemployment and there is a chance of catching up on payments, call your lender. If foreclosure is unavoidable, I hope this information has helped and prepared you for the process.
