Going Through the Foreclosure Process

When homeowners can no longer make the payments on their mortgages, they may end up going through a foreclosure. This term refers to a series of steps that end in the lender claiming ownership of the home. The early stages of the process may begin as soon as a person starts missing payments, but it often can be reversed. Going through foreclosure may feel overwhelming or scary, and understanding can help lessen these feelings. This information helps Vallecito Lake homeowners determine their options and what they will be expected to do if their home is foreclosed.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

What Does Foreclosure Mean?

Foreclosure is a process that may start and stop periodically for anyone who misses multiple payments on their mortgages. The foreclosure process is different in each state, as foreclosure is by state law, not federal law. Foreclosure rules and laws can be complicated and confusing, so it's important for homeowners to seek the services of an attorney.

People who discover that their homes are in “pre-foreclosure” may never actually lose their homes. Foreclosure is a legal designation that lenders use to demonstrate that they have taken appropriate steps to notify the homeowner of missed payments and attempt to get the homeowner current on the mortgage. If the lender can prove that these attempts have failed, they may be able to take legal ownership of the home, or sell it to a willing buyer.

Unlike buying or selling a home, foreclosure can be something that puts homeowners in a rather indirect position. After a certain number of missed payments, the lender may start giving notices that they are beginning the process. If homeowners are unable or unwilling to take action to correct the default, they may not need to do much until the home has been actually foreclosed on.

How Do Short Sales Differ from Foreclosure?

The housing crisis blurred the lines between short sales and foreclosures, but generally they have quite distinct features. Homes that go into foreclosure may not necessarily be worth less than the cost of the mortgage and other liens. By definition, short sales require the property to be worth less than what the homeowner owes on the mortgage, even if the payments are current. A short sale can be more complicated and time-consuming because the lender has to approve the sale price and any negotiating within the purchase offer. Where appropriate, short sales may be a viable choice for homeowners who could otherwise face foreclosure. Short sales may not affect a homeowner's credit as badly as a foreclosure. However, they could involve responsibility to pay back the debt not covered by the sale.

What Are the Stages of Foreclosure?

There are three fundamental steps to the foreclosure process. The stages set limits on lenders as to when and how they can issue a notice or take the next step. The first involves a notice of default, which usually happens 3-6 months after the first missed payment. The default notice time frame is usually a matter of state laws, and can differ from state to state. Likely, the lender has already told the homeowner that they are running behind on the mortgage. This is a more formal notice.

After the notice of default, the lender must usually wait at least three months before they can deliver the second notice. This stage is typically called a “Notice of Sale.” The notice announces a date and time for a trustee sale, which is the culmination of the foreclosure process. The final stage is the sale itself. Here, the lender sells the home to a third party or buys it directly. Homeowners may have the ability to catch up on payments up to the point of the sale, but it depends on the state.

Although lenders are usually required by law to wait a specific amount of time for each phase, they are not always obligated to make the process timely. Some lenders may delay starting the process because they are overbooked with other tasks. Others may stop at one stage because they are trying to negotiate something different with the homeowner.

Do Homeowners Have Alternatives to Foreclosure?

It is possible for homeowners to bounce back from early foreclosure proceedings and keep their homes. Usually, it relates to how quickly homeowners can pay the overdue funds, and how responsive they are to the lender. Experts strongly recommend reaching out to the lender as soon as mortgage default becomes imminent, to discuss options. Alternatives might include:

• negotiating a payment plan to cover the overdue money
• refinancing to a mortgage with a different payment (dependent on homeowner qualifications)
• selling the home at a sale price approved by the lender
• giving the lender the deed in lieu of foreclosure

Lenders may not be required to offer options to get out of foreclosure, but many do. Foreclosure costs lenders money, so many would often prefer to work something out with the homeowner instead.

Navigating the foreclosure process may be fraught with confusion and worry for homeowners. Understanding the common alternatives and how much time they have can help people make a financial decision that works best for them.

For informational purposes only. Always consult with a financial advisor or attorney before proceeding with any real estate transaction.