Although it may seem overwhelming, the mortgage foreclosure process is actually easy to understand. This article breaks down a typical foreclosure process, stage-by-stage from beginning to end.
Stage 1: Preforeclosure
When a homeowner signs a mortgage agreement he or she promises to make regular payments on the loan and agrees that if those fall behind or are missed altogether that the lender may take the home back through legal action. Preforeclosure, in fact, occurs when the borrower misses a loan payment and the lender files a notice of default. This first stage gives borrowers time - typically three months - to catch up on their payments, refinance their mortgage or sell their home before it heads to public auction.
Preforeclosure marks the beginning of the foreclosure process. In this stage, the lender orders something called a "Notice of Default," (it is also referred to as a Lis Pendens in other states) which tells the general public that the foreclosure process has begun for a given property. In addition to giving the borrower time to catch up on late mortgage payments, it also lets the public know there is a preforeclosure property that may be available for purchase.
Stage 2: The Sheriff's Sale
If the borrower doesn't bring the mortgage up to date within the specified timeframe, the lender will usually schedule an auction to sell the property. Once the lender chooses a time, date and place for the sale, a Notice of Sale will be issued. Like a Notice of Default, a Notice of Sale is public domain. The notice is mailed to the borrower, posted on the property itself and published in local newspapers.
The sale itself is called a "Sheriff's Sale," and it is the second major stage of the foreclosure process. A Sheriff's Sale is very similar to any other kind of auction. A typical scenario proceeds as follows:
Stage 3: Real Estate Owned Properties (REO)
In the event that there is no bidder at the Sheriff's Sale other than the lender, the property becomes REO (an acronym for "Real Estate Owned") and ownership goes to the lender (i.e. a bank, financial group or mortgage company). This usually happens because bidders judge the property to be worth less than what is still owed to the lender.
The REO stage sometimes also occurs earlier in the foreclosure process if the borrower and the lender reach an agreement to sell the property to the lender during preforeclosure.
In either case, once someone else - either the lender or the highest bidder - signs the paperwork the major parts of the foreclosure process have come to an end.
A mortgage is nothing more than a loan. Like most loans, it requires some collateral (the thing you'll lose if you don't pay the lender back). In this case, the collateral is a house or apartment you want. A bank lends you money to buy a house, and if you don't pay them back when they say to, they get to seize the house, put you out on the street, and sell your home so they can get their money back.
The Federal Reserve has proposed a new set of lending regulations designed to help protect borrowers. In an effort to tighten up some of the questionable lending practices that are being blamed for much of the current credit crunch, the Fed is calling for stricter guidelines for mortgage lenders.
Learn about important real estate technology tips to make your home selling and buying much easier. Forrest Luff doesn't have to be at his office to look up real estate listings, send and receive e-mails or work up a sales contract. A "smart" cell phone, a wireless connection and a portable printer are all the real estate agent needs to help clients buy and sell homes no matter where he is.