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The Foreclosure Process
Foreclosure is a forced sale of property - usually a residential structure such as a house. Foreclosure occurs when a property owner is unable to make payments on their loan or mortgage obtained from a financial institution such as a bank. The lending institution can then repossess the home and/or resell it in order to collect funds for the outstanding loan.
The Process of Foreclosure
The foreclosure process can vary from state to state due to differences in local laws.
Before foreclosure can be pursued by the lending institution, they must give the homeowner proper notice that they are in default, and then allow them reasonable time to make back payments in order to cure the default.
If payments are still not forthcoming, the lender may then take the following steps:
- Pursue a judicial foreclosure, which is a lawsuit filed in court ordering the homeowner to sell the real estate; OR
- Pursue non-judicial foreclosure, which allows a third party trustee to foreclose the home and sell it without a judicial ruling
- Whether the foreclosure is judicial or non-judicial, the lender must provide the homeowner with notice that the home has become subject to a foreclosure sale
- The property will then be sold at a public auction to the highest bidder. The lender itself may purchase the house if no one bids high enough.
- If the lender has purchased the home, they may then resell it through a private sale in the future
- An unlawful detainer suit may be filed in order to evict any residents who have not vacated the home by the time of the public auction.
The Role of Mortgages in Foreclosures
Mortgages are an important part of foreclosure proceedings. A mortgage is essentially a lien on the residential property which obligates the home owner to pay back money which they used to pay for the house.
Some mortgages include an acceleration clause, which allows the bank to collect on the entire loan if the borrower misses payments. Acceleration clauses can make foreclosure more likely, since most people cannot afford to pay back their entire loan amount.
Foreclosure can usually be avoided at any time by paying off the mortgage debt and any associated foreclosure costs. There may also be other legal defenses available, especially if circumstances of fraud or a scam are involved.
In some jurisdictions, filing for bankruptcy can temporarily suspend foreclosure proceedings. However, filing for bankruptcy is a major decision that may have weighty consequences, so check with an attorney to determine all your options in preventing foreclosure.