Foreclosure – What it is and How it Works

We have seen this kind of thing in movies or TV shows: the main character is sitting in a nearly dilapidated chair, resting his forehead on the palm of his hand, then sighing not because of relief but because of worry. The next thing he does is rummage his old bank book in a sea of old bank notices and mails that bear bad news. He takes a long drag on his cigarette as he tries to accept that he is about to lose most of his property because he could pay off a loan.

That scene shows something about foreclosure.

Foreclosure is a legal process when the mortgaged property of a borrower is confiscated by the lender. This happens when the borrower was not able to fulfill his payments. If the borrower falls behind his mortgage payments by a few months, there is a chance that foreclosure will begin.

There are different processes of foreclosure but it depends on which state you live in. These processes are either judicial foreclosure and non-judicial foreclosure. Judicial foreclosure is when the borrower files an appeal to the court so the borrower could raise his defenses. Non-judicial foreclosure takes place even without filing an action to the court, but this process is carried out by a series of steps.

Stages of Foreclosure

 

Default

 

This technically means that you are late in paying off your loan. If you are late for at least 36 days, you are entering a “default”. If several days have passed—specifically you are 45 days late— and you still cannot cope with the payment, the lender will write you a “notice of default”.

You have to keep in mind that when you receive a notice of default, contact your lender immediately to discuss the options or steps that you can take to lessen the possibilities of foreclosure.

Moreover, the person has to be 120 days late for the legal process of foreclosure begins.

 

Filing of foreclosure

 

This only happens in a judicial foreclosure state. The lender will file a lawsuit against the borrower which will prompt the borrower to defend his status. If the court favors the lender, the foreclosure will proceed to auction off the property.

 

Auction

 

This only happens when the court allows it after the trial. But in a non-judicial foreclosure state, the lender has the power to sell the property through auction by simply issuing a “notice of intent to foreclose”. To get the attention of people who are currently buying a property, the lender could publish his offers to a print medium or sometimes on the Internet. The auction is open to the public as well. In some cases, when the property was not bought, the lender or banks are forced to buy the property making it either bank-owned property or real estate property.

Preventing Foreclosure

With all of what is happening in the world right now, we cannot afford to lose anything, most especially our house or any of our property. So what can we do? These are some of the things that we have to do to prevent or stop foreclosure:

Educate yourself and learn about your legal rights.

First things first. Your rights as a citizen of a state will help you defend your status as a borrower. You can read about laws that cover foreclosure, loans, mortgages, and the like to educate yourself. Understand at least the basics, and know your rights. You can ask for help from more informed individuals if you still find it confusing.

 

Contact your lender.

 

Discuss with your lender the things that could be done in case there is an impending foreclosure. People would suggest you reinstate the loan or ask for another loan plan that is much cheaper than what you currently have.

 

Organize your loan statements.

 

This shouldn’t be that hard since we all have that urge to organize something important. Do not lose the papers or contracts you signed during the agreement. Keep track of your billing statements and the payments you have fulfilled for your loan. You have to keep any document that is related to the mortgage deal. Keeping those papers will save you the moment you were given a notice of default.

Foreclosure is somewhat inevitable when you are not financially stable. We could offer an alternative to the process such as a repayment plan, refinancing, forbearance, partial claim, and a very rare instance: forgiving the borrower.

However, no matter how many deals the borrower and the lender have agreed on if the housing problems of a country are still unsolved, homelessness is always a possibility to the unfortunate.