In today's faltering economy, homeowners are facing foreclosure in increasing numbers. With mounting debt, rising unemployment rates, and lack of accessibility to credit, many families are falling behind on their bills and are eventually left with no option but to default on their mortgages.
With home foreclosure a predominant topic in the news, it is important to understand what foreclosure means and how the process works.
Foreclosure is essentially the forced sale of a home. When a borrower defaults on his or her mortgage payments, the lender (or other lien-holder) then has the right, as specified in the mortgage agreement, to legally repossess the property. The mortgage holder may then offer the property for sale. The proceeds of the sale must be used to satisfy the outstanding loan balance. After the loan is settled, any remaining lien-holders are reimbursed, and the remaining equity (if any) is returned to the borrower.
The actual procedure of home foreclosure varies from state to state, but the same basic process applies in most cases.
First, the loan becomes delinquent, meaning the borrower has ceased to make payments; the borrower goes into what is called default. The default period lasts for approximately three months, during which time the lender attempts to contact the borrower to arrange repayment.
Once the loan is in default, the lender files a public Notice of Foreclosure announcing the intent to foreclose on the property. The borrower will then be notified, either by personal service or by publication in a newspaper, that the property is being foreclosed.
At this point, a date will be set for a court proceeding. While the court date is pending, the borrower may continue to negotiate with the lender to settle upon a repayment plan. During this period, the borrower may remain in the home. If no settlement is agreed upon, the foreclosure will generally be granted by the court.
Once the lender has been granted the foreclosure, the occupants may be evicted by the sheriff and the property sold. Foreclosure properties are sold either through normal real estate procedures or through public auction. Depending on the exact procedure for each state, the entire process can take anywhere from 2 months to a full year.
After the Notice of Foreclosure has been filed, a homeowner will receive many mail offers to refinance or purchase the home. Not all of these are legitimate, and it is advisable for the borrower to negotiate directly with the mortgage holder in any attempt to prevent a foreclosure.
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