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Understanding the Foreclosure Process

When you take a home mortgage the amount owed is secured over the property. If at any time you fail to meet repayments as required by the mortgage agreement, the lender may seek remedy known as foreclosure.

Thus, Foreclosure is the process where a bank or other secured creditor sells or repossesses a parcel of real property after the owner's fails to comply with the mortgage agreement [deed of trust]between the lender and borrower.

The violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. The mortgage holder can in most cases, initiate foreclosure anytime after a default on the mortgage. The process ends when "the lender has foreclosed its mortgage or lien."

Foreclosure is also termed 'mortgagee sale' or 'mortgagee auction' by non-USA countries.

The Foreclosure Process

The foreclosure process begins when the lender files a public default notice, called a Notice of Default or Lis Pendens and ends when either:

The borrower/owner pays off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure. This generally reinstates the mortgage loan
The borrower/owner sells the property to a third party during the pre-foreclosure period. Proceeds from the sale are used to pay off the loan. This has the advantage of avoiding the foreclosure appearing in the mortgagees credit history.
The lender [mortgagor] takes ownership of the property with either the intent on re-selling it on the open market or retaining it as a rental investment. Ownership is gained either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned or REO properties [Real Estate Owned by the lender].
A third party buys the property at a public auction at the end of the pre-foreclosure period.

NEXT: The Foreclosure Auction