Everything You Need to Know about Foreclosure


It can happen to anyone. You get a notice saying that your home is going to go into foreclosure. It’s enough to create a panic. Your home is your security and you may not have many options to move.

The more you know about the foreclosure process, you’ll feel like you have options. It’s really not the end of the world, though it may feel that way.

What happens during foreclosure? Keep reading to find out.

What is Foreclosure?

When you purchase a home, you either pay cash or take out a mortgage to finance a large portion of the purchase. Most homeowners will take out a mortgage and about 16% of buyers paid cash this year.

When you have a mortgage, you’re responsible for making monthly payments on the principal and interest in a fixed monthly payment.

If you miss a payment, it will have a negative impact on your credit report. Miss several payments in a row, the bank will move to seize the property.

This process where the bank moves to reclaim the property is known as foreclosure.

Common Reasons for Foreclosure

There are many reasons why foreclosure happens. One of the main issues is that families are living paycheck to paycheck.

If there’s a setback like a medical emergency, job loss, or furlough, a high percentage of families will have trouble making ends meet.

When the federal government shut down for several weeks in 2019, 800,000 government employees were impacted. The mortgage industry worked with these people who had trouble making their payments on time.

Other reasons for foreclosure include a change in mortgage payments, increased cost of living, higher property taxes, or the mortgage is underwater.

Mortgages are usually 30-year fixed-rate loans. This means that you’ll pay the same amount every month for 30 years.

There are also adjustable-rate mortgages, where the payments fluctuate according to the interest rate. If there’s a rise in the interest rate, the mortgage payment will be higher.

When a property is underwater, the value has declined to the point where the mortgage is higher than the value of the home. In this case, a homeowner might miss their payments and let the home go into foreclosure. They’ll take the loss on the property and move on.

Types of Foreclosure

There are a few types of foreclosure that a loan company can go through to start the process to regain the property. Which one the lender uses will depend on the location and the amount owed. Some states have laws that govern what happens during foreclosure.

Judicial Foreclosure

This is legal in every state and is a common foreclosure process. What happens here is that the lender will file a lawsuit in your jurisdiction. You’ll get a notice to pay the balance owed on the mortgage, usually within a 30 day period.

If you fail to make your payment, the court or sheriff’s office will auction the property.

Strict Foreclosure

A strict foreclosure is the least common type of foreclosure. Most states don’t allow it at all. A lender will file a lawsuit against you and demand payment within a specific timeframe. The court will order you to make a payment, and if you don’t do so, the property will go back to the bank.

Power of Sale

You’ll want to check your mortgage documents to see if your mortgage carries a power of sale clause. If it does, then you’ll need to pay attention to this. Once you miss a payment, your lender will send notices telling you that you’re late (like you don’t know that) and demand payment.

If this goes on for an extended period of time, the bank will seize the property and auction the house itself.

What Happens During Foreclosure?

Now that you’re familiar with what foreclosure is and the different types of foreclosure, it’s time to dig into the foreclosure process.

The process is triggered when you miss a mortgage payment. You’re going to have late fees and penalties to pay, which will increase the amount you owe.

If you miss a second payment, you’ll get more calls and notices from your lender about making payments.

Miss a third payment, and the situation becomes serious. This is when you are likely to get demand letters from the lender demanding payment within 30 days.

At this time, you still have options to avoid foreclosure. You’ll want to work out some kind of arrangement with your lender.

After the fourth month and no payments are made, the bank will move to seize the property. They’ll refer you to work with their attorneys. You’ll also be responsible for paying the bank’s attorney fees.

The attorneys will work with the courts to determine a sale date and proceed with auctioning your home.

How to Prevent Foreclosure

The number of foreclosures has gone dropped since the 2008 financial crisis and they’re the lowest since 2005. That may be comforting, but if you look closely, you’ll see that states like New Jersey and Delaware have higher rates than the rest of the country.

If you find yourself in this situation, you still have options. The most important thing you can do is communicate with your lender.

The moment you know that there will be an issue with your mortgage payments, contact your lender. In most cases, they are understanding and will be willing to work with you to get back on your feet.

You also have many options available to prevent foreclosure. Read more now to find out all of the options available to you.

Know All of Your Options During Foreclosure

It’s common for families to suffer financial hardships. Unfortunately, a hardship that lasts for months and months can result in the foreclosure of your home.

What happens during foreclosure? It depends on you handle the situation. If you bury your head in the sand, you’ll lose your home. The alternative is to take initiative and prevent foreclosure.

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