Foreclosure

Foreclosure is a legal process through which lenders reclaim properties from borrowers who can no longer afford to meet their monthly mortgage obligations. It takes away the ownership rights an owner has over a property and gives it to the lender in order to sell the property for the purpose of paying a debt.

The time line for the foreclosure process is usually 3-4 months, it varies depending on the state where the property is located.  The property isn't foreclosed on until it is sold at an auction and as per state's procedure.  Being in foreclosure means that the lender has initiated legal proceedings to foreclose a property.

Usually, on the first month of default, the lender initiates collection process by contacting the borrower over the phone or through mail. On the third month, if the borrower still has not responded to the repeated notices of the lender, a Demand letter or Notice to Accelerate which states the total amount of monthly due that the borrower needs to pay will be sent. If on by fourth month, the borrower still refuses to fulfill his obligations, the lender will then schedule a date for a Sheriff's or Public Trustee's Sale.  A Sheriff's or Public Trustee's Sale is a public auction that is open to all bidders and the property is usually awarded to the highest bidder who meets all the criteria set by the Trustee. The auction date signals the date for the borrower to move out of the property is nearing.  The borrower will be notified of the sale through mail, notice tape on the door or an advertisement in the local paper beforehand. During the transition from the Demand Letter to the Date of Sale, the borrower still has a chance to work out a deal with the lender. He/she can apply for refinancing, pay the debt in full plus attorney's fees or sell the property. If none of the above takes place by the auction date, the property will then be sold to the highest bidder. The proceeds from the sale are used to pay the creditors. Anything in excess will go to the owner of the property that was auctioned.

In the event that the borrower still wants to reclaim the property even after the sale, all he/she has to do is pay the total amount stated in the Demand letter and the attorney's fees and the total cost incurred in the foreclosure process.

You may refer to www.foreclosurelaw.org to know more about foreclosure process specific to your state. Asking for an expert advice from a housing counselor at the earliest possible time is greatly suggested so that the borrower will be properly assisted. It is also important to have an open communication between the creditor and the borrower so that they can work out an arrangement to avoid foreclosure of the property.