The foreclosure process will vary depending on the state of residence and servicing mortgage lender. However, the process begins when banks send borrowers a breach of contract or payment collection notice. This is referred to as the preforeclosure phase. If mortgagors can cure mortgage arrears and make future mortgage payments, the process could end at this stage.
The foreclosure process continues when borrowers ignore collection letters or are unable to enter into foreclosure prevention strategies offered by the bank. Once borrowers receive a notice of default it is in their best interest to immediately contact their lender. Ignoring the situation only escalates the process.
Once mortgage default reaches 60 days, banks issue a demand letter which requires borrowers to pay the outstanding balance owed on the mortgage note. Most banks will work with mortgagors to devise a payment plan to cure mortgage arrears at this stage of the foreclosure process. The breach of contract letter usually outlines payment requirements and requires borrowers to take action within 30 days to stop bank foreclosure.
Lenders may offer real estate forbearance, loan modification, or mortgage refinance to prevent foreclosure from occurring. Borrowers who want to keep their home must work with a bank loss mitigator to develop a repayment plan. As long as mortgagors comply with payment terms they can stop the foreclosure process from continuing.
If borrowers cannot afford to stay in their home, banks may offer a real estate short sale which allows mortgagors to sell their home for less than is owed on the loan. If short sale is not an option, banks may offer deed in lieu of foreclosure to minimize financial losses.
If borrowers do not qualify for these options or default on their payment plan, banks file a Notice of Default through local courts. NODs are at matter of public record and published in local newspapers as a pending foreclosure.
Within 30 days of filing the Notice of Default, banks can commence with selling the property through public auction. Depending on the state, foreclosure auctions can take place at an auction house, courthouses, or at the property being auctioned.
If the house does not sell through auction it is returned to the bank. At this point, it becomes real estate owned or REO property. Banks can hold properties as a financial asset or list them for sale through the bank's loss mitigation division or local real estate agents.
Most lenders prefer to avoid the foreclosure process when possible because it is time-consuming and expensive. Freddie Mac reports the average cost of foreclosure ranges between $60k and $80k per home. These costs include outstanding loan balances, legal fees, and real estate transfer costs.
It is best to develop a payment plan or enter into options which reduce the cost of foreclosure. Borrowers who are proactive generally have more available options than those who do nothing. If you are struggling to make mortgage payments or can no longer afford to live in your home, help is available. We invite you to browse our foreclosure article library to obtain additional information and resources so you can make an informed decision.
Published on July 30, 2010 at 03:43 AM | Comments: 1