For the experienced or non-experienced real-estate investor, the process of foreclosure isn’t rare. Yet, whether you or a loved one might be going through a foreclosure, it is crucial to acknowledge and understand the process you may or may not face. A foreclosure occurs when a property owner fails to make either principal or interest payments on their loan, thus allowing the lender to recover the amount owed by selling or taking ownership of the property. Although the process varies from one state to another, it generally occurs across a set number of steps, yet there are still several opportunities for the homeowner to bring the loan current and avoid the foreclosure process.
The foreclosure process begins when the borrower, usually the homeowner, fails to come up with at least one mortgage payment. Usually, mortgage payments are due on the first of each month and lenders may even allow a 15-day grace period, yet if the borrower still fails to pay, the lender typically charges a late fee and sends a missed payment notice. After TWO failed payments, the lender will send a demand letter which is much more serious. Nonetheless, a lender is still likely to settle an arrangement for the homeowner to catch up on payments and the borrower usually has 30 days after receiving the demand letter to remit the late payments.
After 90 days of failed payments, a notice of default or NOD is sent, which may be placed on the actual property, in some states. Once the notice of default is sent, the loan is turned over to the lender’s foreclosure department which should be in the same county as the property. After the homeowner is informed that the notice is recorded, they enter the reinstatement period. The reinstatement period is usually a period of 90 days which the lender gives to the homeowner for them to settle payments and renew the original loan. After the 90 days of the reinstatement period, a notice of trustee’s sale is recorded in the same county that the property’s located in. The lender is also expected to publish a notice in the local newspaper for three weeks, announcing that the property will soon be available at public auction. The notice should include all the owners’ names, the property’s address, a legal description of the property, and when and where the auction will occur.
After the notice of trustee’s sale, the property is placed on public auction and is sold to the highest bidder who must also meet all the necessary requirements. The lender or the lender’s firm will estimate an opening bid. The opening bid is typically based on the value of the loan, the sale’s associated costs, and any unpaid taxes and liens. As soon as the highest bidder is confirmed, and the trustee’s sale concludes, a trustee’s deed upon sale is given to the winning bidder, and the winning bidder becomes the owner of the property.
On the other hand, if the property isn’t sold during the public auction, the lender becomes the owner of the property and is most likely to sell the property on its own, with the help of a broker or REO asset manager. Additionally, the lender may get rid of liens and other expenses to make the property “more attractive.”
When it comes to the homeowner, they may stay in the home until it’s sold. After it’s been sold, either through public auction or an REO property, an eviction notice is sent demanding that the premise is vacated immediately. Several days are given for those living on the property to vacate their belongings and themselves.
Ultimately, to avoid any foreclosures, it is crucial to make any mortgage payments on time. However, if you find yourself facing the foreclosure process, it is important to keep in mind that there are several opportunities to catch up on payments and avoid the process altogether.