When a customer no longer can afford to make mortgage payments, the home loan goes into default. At that time, the lender can begin the foreclosure process to take back the property. Although the process varies in each state, similarities exist.
Prior to Default
Before the mortgage goes into default, lenders will usually try to contact you for as much as four months. Around the third month, a demand letter for payment will be mailed. If you do not work with the bank's counseling service or bring the account current, the next step will be foreclosure.
Types of Foreclosure
Judicial foreclosures take the longest. The lender files papers with the courts asking them to foreclose on the property. The process can take three to six months on average. Power of sale foreclosures allow the lender to give notice, wait a specified time then sell the property at auction.
Sale of Property
The lender or legal authority will attempt to sell the home at the auction. If the property is sold, the new owners can evict you from the property if you still live there. If the home does not sell, it becomes real estate owned (REO) and will be sold through real estate agents on the open market.
Redemption Period
In some states, borrowers can reclaim their homes by paying the outstanding balance plus interest and fees during the redemption period that can last from a month to a year.
Deficit Judgment
If the property sold for less than what was owed on the mortgage, the lender may hold you responsible for the balance.
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