The In’s and Out’s of Foreclosure

With the threat of foreclosure, one might naturally have some apprehension about the process. What exactly is foreclosure anyway? What are my rights? How will it affect me and my life? The process of foreclosure doesn’t have to be scary if you arm yourself with a little knowledge.

Foreclosure, simply put, is the process used by lenders to acquire the collateral put up when the borrower attained their mortgage loan. This is normally a “last resort” measure that lenders try to avoid at all costs.

Why are foreclosures just as hard on the lenders as the borrowers? First, mortgage companies are not in the real estate sales business: actually owning property, preparing it for resale, and eventually selling it (most often for a loss) puts a large strain on lenders recourses, and hurts the bottom line.

Because of this, most banks and mortgage companies would rather work out an arrangement with the borrower before reaching the stage of actual foreclosure. If you find yourself behind on payments, you should contact your lender immediately and attempt to work out an arrangement. If your negotiations are unsuccessful, and the bank proceeds with the foreclosure procedure, you can expect the following;

1. Once your loan payment is approximately 25-50 days late, you will receive a letter from your lender informing you of your delinquency. This letter normally states that you have 30 days to bring your account current (principle, interest, and late fees) or your account will be subject to foreclosure. At this time your lender will also report your account status to the various credit reporting agencies. Even if you are able to repay all the money owed, your credit score will still suffer.

2. At the 60 day mark, your account is normally handed over to their legal team. Formal foreclosure proceedings are normally initiated, often with the aid of an outside law firm. The law firm will get a formal public notice issued at your local county courthouse. This notice contains all the details regarding your mortgage loan and delinquency. This information will be published in your local paper, at the courthouse, or on the courthouse’s own website.

3. In most states, at about the 120-day delinquent mark, the lawyers for the lender will plead their case before a judge in a formal proceeding. In other states, this procedure will take place outside of a courtroom in a non judicial setting. If the court finds in favor of the lender, your property is now subject to getting readied and sold at an auction. The length of time to actually complete a foreclosure proceeding can vary greatly depending on what state you are in. For example, Georgia has a 32 day turnaround, while states like Illinois and New York can take up to 445 days to complete.

4. Even if you home is lost in foreclosure, all is not lost. Many states allow for a “buy back” period where the home owner is given an opportunity to buy his/her foreclosed home back from the auction winner. Again, the length of time a home owner is allowed to redeem his house varies greatly: some states allow up to one year, while others give an owner up to five years to reclaim their home. Still other states offer no redemption period at all.

As you can see, the foreclosure process is not immediate. There are many opportunities during the entire process where a deal can be struck between the home owner and the lender. The worst thing a home owner facing foreclosure can do is to remain passive. Contact your lender immediately if you are facing a financial hardship. A simple phone call could mean the difference between keeping or losing your home.

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