Foreclosure: The Beginning of the End

Foreclosure is a lawsuit that a bank, mortgage company or other lien holder initiates to attempt to take an owner’s property, so as to satisfy an outstanding debt. Once the homeowner fails to make their monthly payments, the mortgage company and/or banks may attempt to work with the homeowner on payment arrangements. These payment arrangements are in the form of refinancing, restructure a payment plan, requesting the lender to freeze the interest rate on the adjustable rate mortgages or selling the property.

There are two types of foreclosures that are most commonly used: judicial and non-judicial. The judicial foreclosures are common in all states except Idaho, which the court gives the creditor permission to sell the property to the highest bidder with a notice to the borrower that the property will be sold. The non-judicial foreclosure does not involve the court system. This type of foreclosure is available if the mortgage contract has a “Power of Sale” clause, which means the creditor may attempt to sell the property once the borrower is in default. This foreclosure is not available in California, New York and Texas. The actual process for foreclosure varies from state to state, but the usual timeline is between 90 to 180 days. The process begins with a notice to the borrower that the property is in danger of foreclosure and the borrower has 20-30 days to file their answer in court.

To avoid foreclosure, most lenders have a grace period for a late payment to be accepted without penalty. Some lenders will restructure a payment plan to let you make up the late payments over a period of time. By refinancing the property, if the property has enough equity, the borrower can use the equity for the late payments that may bring the account current. Selling the property is another option to avoid foreclosure. The homeowner can file a “Motion to Dismiss” the foreclosure in court, to delay the foreclosure for a given period of time. This process is put on hold until the judge in the case can rule on the motion.