Foreclosure is the legal process of obtaining title to real estate if the mortgage is in default. Foreclosures may be judicial, requiring a decision by a court of law, or non-judicial. Some states require judicial action, while others allow the lender to choose the style of foreclosure.
There are several phases of a non-judicial foreclosure:
- Notice of Default - The first phase of a non-judicial foreclosure is the Notice of Default, which is typically sent to a homeowner when the loan is 60 to 90 days delinquent. It notifies the homeowner of the default of the mortgage and warns that the lender will initiate foreclosure if the default is not cured if a specific amount is not paid by the due date.
- Notice of Foreclosure Sale - The second phase of foreclosure is when the Notice of Foreclosure Sale is sent to the homeowner, which typically occurs when the loan is 90 to 120 days delinquent. The Notice of Foreclosure Sale specifies a foreclosure sale date, the amount that must be paid to reinstate the mortgage, as well as the time and place of the foreclosure sale.
- Foreclosure Sale (Sherriff’s Sale) - The next phase is the Sheriff's Sale, which usually occurs when the loan is 150 to 210 days delinquent. The mortgage company will specify an amount to bid at the foreclosure sale, generally an amount that covers the outstanding balance, interest, costs and fees. There may be other bidders at the sale. Once the foreclosure sale is held, the lender typically owns the property.
- Redemption Period - After the Foreclosure Sale has occurred, some states allow a redemption period when the borrower may pay the outstanding balance of the loan (plus any cost and fees incurred during the foreclosure process) and reclaim the property. In most states with redemption periods, the borrower has the right to occupy or sell the property during the redemption period.
- Notice After the Sale - The final phase of a non-judicial foreclosure is the Notice After the Sale, which may occur after the sale (if the state does not have a redemption period) or at the end of the redemption period. The Notice After the Sale informs the homeowner of the deadline to vacate the property. If they do not vacate the property by the stated deadline, the lender will initiate eviction proceedings.
In a judicial procedure, a lender can't foreclose until they prove that the homeowner is in default. After the lender has exhausted its attempts to resolve the default, the next step is to contact an attorney to pursue court action. The attorney contacts the homeowner. If the homeowner is unable to pay off the default, the attorney files a lis pendens (lawsuit pending) with the court. The lis pendens gives public notice that a pending action has been filed against the homeowner.
When faced with foreclosure it is important to take action as soon as possible. Contacting your lender and a housing counseling agency are good first steps toward resolving the financial crisis. In addition, homeowners can check out the resources and information at www.hud.gov.