The Foreclosure Process – what is it?
Knowing and familiarization of the foreclosure process helps you anticipate key events, gives you a better understanding of the options, and improves your chances of navigating through foreclosure. Depending on your situation and the rules and regulations in your area, the foreclosure process can take from several weeks to possibly a year and generally proceeds along the following course:
· Pre-foreclosure: You receive missed or late payment notices in the mail and perhaps phone calls if you fail to respond to the written notices.
- Foreclosure notice:The lender delivers an official foreclosure notice, publishes a notice in the local newspaper or county news publication, and posts the notice on or near your home.
- Reinstatement period:For some time prior to the sale, which varies depending on your jurisdiction, you may be able to stop the foreclosure by catching up on missed payments and any penalties and fees that accrued due to the missed payments.
- Auction or sale:Assuming you do not reinstate the mortgage or take other actions to stop the foreclosure, your property goes for sale. An investor purchases the property or, if nobody bids, your lender ends up with the property.
- Redemption period:In many jurisdictions, you have one last chance to save your property by redeeming it — buying it back from your lender or the investor who purchased it at the auction. To redeem the property, you must pay the buyer whatever the person paid at auction plus interest and any other qualifying expenses the person paid and filed an affidavit for paying.
- Eviction:After the redemption period (if applicable in your jurisdiction), you must move out. If you don’t move out, the court sends someone over to remove you and your belongings from the property.
Focusing solely on the pre-foreclosure process, and taking a more in-depth look will alleviate some of the worry and panic that word can cause. Don’t let the “pre” part of “pre-foreclosure” fool you though: Pre-foreclosure is serious. While your house won’t be taken from you during pre-foreclosure, it’s the first step in the whole foreclosure process which notifies homeowners their property is in danger of getting repossessed.
If you fall two to three months behind on your mortgage, your lender is typically going to come calling with a default notice on the property; this is how pre-foreclosure begins. A default notice lets homeowners know their lender will start the foreclosure process if the debt is not paid promptly.
Pre-foreclosure is essentially the period of time after your lender has notified you that it plans to foreclose on your home, but before the process has been complete and the lender has taken full possession of the home, says Bill Richardson, district sales manager for The Keyes Company, an independent brokerage in Boca Raton, FL.
So you won’t lose your home during pre-foreclosure—think of it more as a final warning.
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“Unless you can negotiate a loan modification or come current on your mortgage, you will not keep your home,” Richardson warns. “Either the bank forecloses on it, or you negotiate a deed in lieu of foreclosure or short sale.
Loan modification in pre-foreclosure
A loan modification is a popular means to save your house when you’re struggling to pay your monthly mortgage. You can request that your lender extend the length of your loan, so you’re responsible for paying less each month. Lenders may also opt to lower the interest rate or allow you to tack your missed payments onto the end of your loan.
If it looks like a modification can be arranged, it’s in a lender’s financial best interest to work with homeowners to keep them in their home. Then the bank doesn’t have to go through the hassle of completing the foreclosure process, evicting the homeowners, and likely having to sell the home to get back its investment. If a loan modification deal is reached, then pre-foreclosure ends, and the homeowners go back to making regular payments on their loan.
Deed in lieu of foreclosure
When a loan modification isn’t an option, pre-foreclosure can also involve a deed in lieu of foreclosure, That means homeowners who are behind on their mortgage hand over their house’s deed to the bank to settle their debt… and walk away.
A lender has to agree to the option, and whether or not a bank will agree to it depends on a number of variables, including the current housing market. If a lender agrees to a deed in lieu of foreclosure, pre-foreclosure ends. The process doesn’t reach official foreclosure.
Short sale: Selling a home in pre-foreclosure
If a loan modification can’t be worked out, another step in the pre-foreclosure process may be a short sale—essentially selling the home to satisfy the bills with the bank.
To negotiate a short sale, homeowners need to talk to their lender about selling their home. If the lender agrees, then the homeowners contact a real estate agent to help them find a buyer, and the bank gets to keep the money for the sale.
If you’re able to work out a short sale agreement, and you find a buyer that garners back approval, pre-foreclosure ends. The bank doesn’t have to foreclose, and you walk away with no bills (but also no house).
How pre-foreclosure affects your credit
Foreclosure hits your credit hard, but how much will pre-foreclosure affect your credit?
“Credit scores are based on payments, whether current or late,” Richardson points out. If you’ve reached pre-foreclosure, the bank has recorded your lateness, and that is reported to the credit-reporting agencies. Future creditors will be able to see that you fell behind on payments, and it will make it harder to get future loans. There is one bit of good news, though. If you can pull a home out of pre-foreclosure, your credit won’t take as much of a hit as it would if the bank foreclosed.