How Foreclosures Happen
What happens when a borrower fails to make their mortgage payments for a period of time, ignores notices that payments are behind, and hasn’t contacted the lender to work something out? The lender can exercise its lien against the borrower’s home to sell the house and payoff the loan. This is a Foreclosure.
How do people go from popping the champagne cork & celebrating on closing day to having their belongings set out on the lawn? It didn’t happen overnight. There are some steps involved:
Step 1 – A Notice of Default is Recorded by the Bank
This will happen after a payment has been missed. Although not as common today, sometimes depending on the bank, it happens after several payments are missed. Banks have been tightening the reins, trying to move homeowners to act long before the point of no return.
Step 2 – Possible Opportunity to Reinstate the Loan
This sounds hopeful- a homeowner can reinstate their loan! Homeowners have the power to stop the foreclosure process anywhere along the way—until five days prior to the auction of the home. How does this happen? They can make their loan payments current plus pay late fees and penalties that were assessed to reinstated the loan.
Step 3 - Date of Foreclosure is Set by the Bank
Typically, the date is about 90 days after the bank sets the notice of default. The homeowner is allowed to live in the house until the actual date of foreclosure. They cannot be evicted until this date. They still have time to come up with that money to reinstate.
Step 4 - Notice of Trustee Sale - Prepared, Published & Posted
The bank publishes the notice (you may have seen those notices in your local newspaper), mails the homeowner a copy and posts it on the outside of the house.
Step 5 - Home is Sold at a Foreclosure Auction
The final step: the foreclosure auction sale. If the homeowner is still living in the house and it’s sold to a bidder at the auction, the winning bidder can have them evicted by the sheriff within 24 hours. If the house doesn’t sell, the bank will show the house and possibly list it with an Real Estate Agent. The bank may also have the homeowner evicted within 24 hours, or the bank may decide to let tem stay until the house sells.
Bottom line: If someone misses a payment, they should not let it turn into two or three. They should find the money, even if they need to borrow from family or friends. Although the process can be stopped anytime up to five days before the sale, the earlier the intervention, the easier it is to stop.