What you need to know about foreclosure and its stages

Mortgage’s trial:

A foreclosure occurs when a property owner is unable to make their loan payments. If a homeowner can’t keep up with the payments, they simply have to sign over the property to the bank that holds the mortgage on the house. A bank can initiate a foreclosure action against the owner. They can sell or repossess (take possession of) property to recover the amount owed on a defaulted loan secured by the property. The rights of a property owner are lost due to non-payment of the mortgage. If the owner is unable to pay off the outstanding debt or sell it through a short sale, the property goes to a foreclosure auction. If the property is not sold at auction, it becomes the property of the lending institution. Foreclosures are pretty straightforward sales because banks generally don’t want to be “homeowners,” they want to be “lenders.”

Here are the five stages to foreclosure:

• Late payments:

Foreclosure is a lengthy process, which varies from state to state. A repossessed property is property that has already been taken by the bank. This stage begins when the homeowner falls behind on the mortgage loan (or sometimes other loan terms). This is usually due to difficulties such as unemployment, divorce, death, or medical problems. Lenders can wait for a second, third, fourth, or even more late payment before sending a public notice to the owner.

• Public notice:

After three to six months of late payments, the lender files a public notice called a ‘Notice of Default’ (NOD) with the County Recorder’s Office, stating that the borrower has defaulted on their mortgage. The notice of default and intent to sell must be mailed to the owner within 30 days of recording. This notice is intended to inform the borrower that he is in danger of losing all rights to the property and may be evicted from the home.

This NOD includes property information, your name, the amount you are past due, the number of days you are past due, and a statement that you are in default on the terms of the promissory note and mortgage you signed when you bought your home. .

The owner has a set period of time to respond to the notice and/or submit any outstanding payments and fees. If money owed or other default is not paid within a specified time, the lender may choose to foreclose on the borrower’s property.

The next step for the lender is to file a notice of sale for the property. However, if the borrower catches up on their payments, the foreclosure process can stop.

• Before foreclosure:

This stage begins when the lender files a notice of default on the property, which informs the property owner that the lender will take legal action if they do not take over the debt. After receiving the notice from the bank, the homeowner enters a grace period known as “pre-foreclosure.” During this time, the homeowner can settle with the bank or pay the amount owed before the mortgage is foreclosed. Homeowners who are in the pre-foreclosure stage can participate in a short sale to pay off outstanding debts. If the borrower defaults during this phase, the foreclosure ends and the borrower avoids eviction and the sale of the home. If the default is not paid, the foreclosure continues.

• Auction:

If the default is not cured by the prescribed deadline, the lender or its representative sets a date for the home to be sold at a foreclosure auction (sometimes called a Trustee Sale). The sale of the Notice of Trustee Sale (NTS) is recorded with the County Recorder’s Office. The notice is sent to the borrower, posted on the property, and printed in the newspaper. At auction, the home is sold to the highest cash bidder, who must pay the high bid price in cash, usually with a deposit up front and the remainder within 24 hours. The auction winner will receive the property’s trustee’s deed. The foreclosure lender sets an opening offer on the property, which is generally equal to the outstanding balance of the loan and any other fees. The money from the sale is used to pay foreclosure costs, interest, principal and taxes, etc. Any remaining amount is paid to the owner. In many states, the borrower has a “right of redemption” (can recover the outstanding cash and stop the foreclosure process) at the time the house is put up for auction.

• Post foreclosure:

If a third party does not buy the property at the foreclosure auction or there are no bids higher than the opening offer, the lender takes over. The property will be purchased by the attorney making the sale, for the lender. If this occurs and the opening offer is not honored, the property is considered Bank Property or Real Estate Property (REO). This occurs because many of the properties for sale at foreclosure auctions are worth less than the full amount owed to the bank or lender, or when no one bids on them. “Bank owned” property is put back on the market for sale, usually listed through a real estate broker.