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Foreclosure is a legal proceeding following a default by a borrower in which real estate secured by a mortgage or deed of trust is sold to satisfy the underlying debt.
In order to avoid foreclosure, the first thing you need to do is to stop avoiding reality. When people fall behind on their mortgage payments, more often than not, they quickly turn to denial. Foreclosure is easier to prevent before the formal process is initiated by the lender. Although different states have different laws and regulations governing foreclosure, one thing is common, it starts with a “Notice of Default”. Foreclosures don't happen without a notice. Mortgage lenders and banks typically allow the homeowner to catch up on the mortgage payment; homeowners are usually given three months to rectify the problem.
After the third payment is missed, the borrower will receive a letter from the lender stating the amount that is delinquent, giving 30 days to satisfy the amount in arrears. This is called a "Demand Letter" or "Notice to Accelerate". If a homeowner does not pay the specified amount or make some type of arrangements by the given date, the lender may begin the foreclosure proceedings.
If the borrower does not have the sufficient amount of funds to bring the mortgage current, the best action to take is to initiate the loan modification process. The loan modification process is often better handled by a third party, due to their experience and the ability to deal with the lending company without a personal attachment to the situation. There are several options when it comes to loan modification, but the main focus should be to keep the homeowner in their home. Loan modification, is the best option to save the property.
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Foreclosure Consequences
Besides the obvious fact that a home owner will lose his or her place to live, there are other ramifications that will affect someone facing foreclosure including emotional and financial burdens:
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Deed-in-lieu of foreclosure
A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower ) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
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Foreclosure Process
The foreclosure process used depends primarily on whether the state uses mortgages or deeds of trust for the purchase of real property. Generally, states that use deeds of trust conduct non-judicial foreclosures; states that use mortgages conduct judicial foreclosures. The principal difference between the two is that the judicial procedure requires court action. See your state information for details.
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Non-Judicial Foreclosure
First, at the lender’s request, the trustee files (records) a notice of default. The borrower has three months from the date of recording to cure the default by paying all the payments due, including the trustee's foreclosure charges and any unpaid real estate taxes.
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Judicial Foreclosure
A judicial foreclosure requires a lawsuit on the part of the lender. The attorney contacts the borrower to try to resolve the default. If the borrower is unable to pay off the default, the attorney files a lis pendens (action pending) with the court.
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Short Sale
A short sale is one of the options available to homeowners to avoid the painful process of foreclosure. It is a sale of property for less than the total amount owed to the mortgage investor. The lender forgives the remaining balance of the loan.
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