Foreclosure is the legal proceeding in which a lender sells or repossesses a property due to the owner's failure to comply on its promissory note. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien."
There are two sorts of foreclosure in most common law states. Under "strict foreclosure," the lender claims the title and possession of the property back in full satisfaction of a debt, usually on contract. In the proceeding simply known as foreclosure, the property is auctioned by the county sheriff or some other officer of the court. In this foreclosure, the sheriff then issues a deed to the winning bidder at auction. Lenders typically bid in the amount of the owed debt at the sale, and if no other buyers step forward they get title to the property in return.
Other states have adopted non-judicial foreclosure proceedings, in which the mortgagee, or more commonly the mortgagee's attorney, gives the homeowner a legally specified notice of the default and the mortgagee's intent to sell the property. If the homeowner fails to cure the default, or use other lawful means to stop the sale, the mortgagee or its representative will conduct a public auction in a similar manner as the sheriff's auction described above.
Rule #1: Contact your lender as soon as you know your payments will be late. Your lender understands and will try to make some payment arrangements.
Rule #2: DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
Rule #3: Never assume your situation is hopeless.
foreclosure can seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.
What Should I Do?
Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.
Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.
Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.
Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure.
Reinstatement might be possible when you are behind in your payments but can promise a lump sum to bring payments current by a specific date.
If your account is past due, but you can now make payments, the lender might agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.
The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
Should I Be Aware of Anything Else?
YES. Beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty.
Act now! Delaying can't help. If you do nothing, YOU WILL LOSE YOUR HOME and you will damage your credit rating.
