The foreclosure procedure involves a lender seizing possession of a mortgaged property and selling it to recoup the amount owing on a defaulted loan. Standard default occurs when a borrower misses a certain amount of monthly payments, but it can also happen when they violate other mortgage rules.
This procedure is based on a mortgage or deed of trust contract, which allows lenders to utilize the property as collateral if the borrower violates the conditions. This process typically starts when a borrower skips or defaults on a mortgage payment; however, state-specific processes vary. A missed payment notification from the lender implies that the month’s payment was not received.
The lender will issue a demand letter if the borrower misses two payments. This is more serious than a missed payment notice, although the lender may work with the borrower to catch up.
The lender issues a default notice after 90 days of missing payments. The lender’s foreclosure department takes over the debt, and the borrower has 30 days to pay and reinstate it. The lender will foreclose if the homeowner doesn’t make payments after the reinstatement period.
It shows on the borrower’s credit record within a month or two of the first missed payment and lasts seven years. The foreclosure is then removed from the borrower’s credit record.
Different states have different foreclosure processes.
Each state has its own set of laws, which may include things like the mandatory public notices that lenders must provide, the options available to homeowners to resolve their debt and avoid foreclosure, as well as the required timeframe for the sale of the property.
During this process, a financial institution takes possession of a property as the final step after a lengthy pre-foreclosure process. The lending institution has the potential to present a variety of alternatives to foreclosure prior to initiating the foreclosure process, many of which have the capacity to alleviate the financial burdens experienced by both the buyer and seller involved.
Judicial foreclosure is a prevailing practice in a total of 22 states, encompassing Florida, Illinois, and New York, among others. In order to initiate foreclosure proceedings, it is incumbent on the lender to substantiate the borrower’s delinquency before the court. In order to recoup its losses, the bank may choose to sell the property through conventional channels or have the local sheriff auction it off to the highest bidder.
The majority of the remaining 28 states, including Arizona, California, Georgia, and Texas, primarily utilize nonjudicial foreclosure or the power of sale as a means of foreclosure. The non-judicial process is characterized by its expediency and limited involvement of the courts, unless the homeowner initiates legal action against the lender.
How long does it take?
The U.S. Foreclosure Market Report from ATTOM Data Solutions, a property data company, found that second-quarter 2021 foreclosures averaged 922 days. The average is 930 days, down marginally from the previous quarter and up 34.5% from 685 days in the second quarter of 2020.
The average number of days varies by state due to foreclosure rules and timeframes. The states with the most extended average number of days in Q2 2021 were:
- Hawaii (3,068 days)
- New York (1,822 days)
- Indiana (1,617 days)
These states had the shortest average times:
- Wyoming (173 days)
- Arkansas (253 days)
- Tennessee (270 days)
How do I avoid it?
Some borrowers can prevent foreclosure after missing a few payments. Options include:
- In the reinstatement period, borrowers can repay their mortgage debt, including missed payments, interest, and penalties, before a set deadline to get back on track.
- In a short refinancing, the borrowed amount is less than the outstanding debt, and the lender may forgive the difference to prevent foreclosure.
- Special forbearance—If the borrower suffers a temporary financial hardship, such as medical costs or a drop in income, the lender may reduce or halt payments.
Mortgage loan discrimination is unlawful. You can take action if you feel discriminated against due to race, religion, sex, marital status, national origin, handicap, or age. Filing a report with the CFPB or HUD is one option.
If a property is not sold at a foreclosure auction or never went through one, lenders, such as banks, may acquire it and add it to their portfolio of foreclosed properties, known as real estate owned (REO).
Bank websites make foreclosed properties easy to find. Real estate investors may buy such homes because banks sell them at a discount, which hurts the lender.
It appears on a borrower’s credit record within a month or two and lasts seven years after the first missed payment. After seven years, the foreclosure is removed from the credit record.
- Lenders take possession of and sell mortgaged property to repay loan debt.
- While state foreclosure laws vary, lenders often cooperate with debtors to catch up on payments and prevent foreclosure.
- The latest national foreclosure average is 857 days, although state timelines vary.