What You Need to Know About the Foreclosure Process

While the foreclosure process varies from state to state, it is important to know how a foreclosure works if you want to make informed and intelligent decisions, whether you are a homeowner or a possible buyer.  The process may differ slightly depending on the city where the property is located so it is advisable to be aware of the specific laws for your location and to ask for advice from the experts when you are involved in a foreclosure process.

The foreclosure process normally requires approximately six months from the time when the homeowner had officially defaulted until the property is repossessed by the bank or lender.  The pre-foreclosure stage occurs 30 to 60 days after the borrower fails to come up with one or two mortgage payments.  At this time, the bank issues a Demand Letter that may require the homeowner to pay the loan completely and immediately, including all legal fees, penalties and late charges.  If the borrower fails to completely pay the debt within a certain period of time, which is usually 30 days, then the foreclosure process is legally initiated.

The next step for the bank or lender is to issue a Notice of Default (NOD), which is sent to the homeowner as a certified letter that indicates the total loan amount and possible strategies for getting the loan back on track.  The foreclosure notice is recorded in the proper local government agency, the auction is scheduled, and a notice is published in the newspaper serving the city or region.  During this period, possible buyers usually approach the homeowner for a short sale although this may also occur during the pre-foreclosure stage.

The foreclosure process to be used may be a judicial sale or a power of sale.  The court plays an important role in the judicial sale but in the power of sale, the bank is able to pursue the whole procedure although a judicial review is usually performed to ensure that the actions of the bank are all legal.  The opening bid that is set by the bank or lender at the auction is often what it wants to collect, which is the sum of the outstanding loan, legal expenses, accumulated interests and other fees.  If the property is not sold during the auction, the lender buys it back and it becomes real estate owned (REO).  For investors and buyers, the REO property offers the benefit of being free from any liens, such as tax liens, because the lender has already paid for them before including the property in the REO list.