Foreclosure Process - An Overview

If you are in the real estate market, even if it just as a homeowner, you should take a little time to understand what a foreclosure is. With the economy in the state that it has been in lately, and particularly the rate of foreclosures in the housing market, an educated homeowner is a better prepared homeowner should the worst case scenario arise. In other words, it is in your best interest to educate yourself on the basics of home foreclosures, what your rights are and how to have the best chance of saving your home should things come down to that.

The formal definition of foreclosure is a legal process in which a mortgagee (the lender) obtains a court ordered termination of a mortgagor’s (the homeowner) equitable right of redemption. It is an unfortunate fact that foreclosure numbers are growing daily. However, you as a homeowner, do have rights and can "fight back" legally. Currently, about 4% to 6% of all homes in the U.S. are facing foreclosure..

How The Foreclosure Process Starts

The foreclosure process can start as early as one missed mortgage payment, although this rarely happens. Lenders are not "anxious" to foreclose on a home. Frankly, it is an unproductive distraction for them and not something they make money off of. By starting a foreclosure, they are making an assumption that they are not going to be paid any more of the outstanding loan balance and must take action to stem their losses.

After a piece of real estate goes through the entire foreclosure process, the lender takes over legal ownership of the property and typically puts it back on the market at a price that will sell it relatively quickly. This, of course, means that there are great bargains to be had if you are a potential home buyer. A fairly large number of people who are in the home buying market, will be kept up-to-date on a daily basis of all the foreclosure listings specifically looking for bargains. Some of these people are investors looking to quickly "flip" (re-sell) the property for a quick profit and some are people just looking for a family home at a good price.

It is important to note that there is usually nothing physically wrong with a foreclosed property. They come in all price ranges from starter homes to multi-million dollar mansions. What they have in common is that the homeowner was unable to meet their obligations to the lender by making the monthly payments. So if you're a buyer, a foreclosed home is the perfect way to get a great price on a good home.

As mentioned, foreclosures typically start with a formal request for payment which is usually a legal document sent by the lender to the homeowner. It will usually be sent after 2 or 3 months of missed payments. Different lenders have different standards of when they will start the foreclosure process. Some lenders will work with you on a revised payment schedule, other lenders are less forgiving and want the foreclosure proceedings to move along quickly.