The Foreclosure Process In Six Steps
According to a recent report from RealtyTrac, one of every 138 homes in the US were in in jeopardy of being foreclosed on during the first quarter. More than 932,000 homes were in one phase of the foreclosure process or another, 7 percent higher than the previous quarter and 16 percent more than 2009’s first quarter. With so many homeowners in jeopardy, it pays to understand the process involved. While small variations in the process exist in different states, there are 6 basic steps involved in a foreclosure.
The first step in the foreclosure process is payment default. This occurs when the homeowner misses at least one payment, and the lender sends out a delinquency notice. Lenders typically offer a grace period of 7 to 15 days after the due date, after which they usually add on a late fee and send the notice out. If more than one payment is missed, many lenders will send a â€œdemand noticeâ€. A borrower will usually have 30 days after receiving this type of notice to make the payments before the lender moves on to the next step in the process.
Step 2 is a notice of default, usually sent 90 days after the first payment is missed. Some states require lenders to post this notice prominently on the property in default. This step begins a 90 day â€œreinstatement periodâ€, during which the borrower can get current on payments to avoid further action. During this time, the loan is handed over to the lender’s foreclosure department.
Step 3 involves the lender reporting a notice of trustee’s sale in the county where the property is located. The lender is also required to publish a notice in the local newspaper announcing a public auction for the property. The notice includes the properties address, all owners’ names, and the time and place the auction is to be held.
Step 4 is the trustee’s sale, where the property is placed on public auction and sold to the highest bidder. The lender or a representative calculates the minimum bid based on what’s owed on the house, any outstanding taxes or liens, and the costs associated with the sale. Once the highest bidder is confirmed as a qualified buyer, they are immediately entitled to possession of the property.
Step 5 only applies when the trustee’s sale fails to move the property. This type of property is referred to as real-estate owned (REO). At this point the lender owns the property and will attempt to sell it on their own, either through a broker or with the aid of an REO asset manager. Lenders will often remove liens and other expenses from the price tag to entice buyers.
Step 6 involves eviction of the defaulting homeowner, who can generally stay in the house until it is sold. An eviction notice is sent, demanding that the property be vacated immediately. Several days are typically allowed for the residents to remove belongings and vacate before the local sheriff is brought in to remove anyone remaining and/or their belongings. Seized contents are sometimes placed in storage and can be retrieved for a fee.
Through the majority of these steps lenders are usually willing to work with borrowers in an attempt to avoid foreclosure. If a strapped homeowner feels they will be able to catch up on payments (i.e. just got a new job after being unemployed), it is advisable to contact lenders to explain the situation. Especially in today’s market, lenders are trying to avoid the hassle, not to mention the financial loss, of foreclosing on properties.