We’ve all heard the phrase “foreclosure,” but do you know what it means, what it involves, and when it is triggered? Many homeowners do not, as they figure it will never happen to them. While there are encouraging signs about a growing economy, we are still not out of the woods when it comes to foreclosures. All homeowners need to know how foreclosures work and should be able to recognize the warning signs that they are at risk of foreclosure.
What is Foreclosure?
A foreclosure happens when a bank or other lender takes possession of a mortgaged property. This results from the mortgagor failing to keep up their mortgage payments to the lender. In a foreclosure, you not only forfeit the physical property, but you also forfeit all rights to the property.
What Happens During a Foreclosure?
A foreclosure begins when the homeowner, the borrower, fails to make timely mortgage payments. While one missed payment is unlikely to trigger the foreclosure process, three to six months most certainly will. After three to six months of missed payments, the lender will record a public notice with the County Recorder’s office stating that the borrower has defaulted on their mortgage.
After the lender records this public notice, the borrower enters a grace period known as “pre-foreclosure.” During pre-foreclosure, which can last anywhere between 30 and 120 days depending on where you live, the borrower is able to attempt to try to pay the outstanding amount owed or sell the house via a short sale. If neither option works out, then the foreclosure process continues.
At this stage, the lender will set a date for the home to be sold at a foreclosure auction. The notice of this sale is recorded with the County Recorder’s office and the owner of the home is provided with notice as well. It is important to note that borrowers have something called the right of redemption, meaning that they can provide the outstanding amount owed and stop the foreclosure process right up to the moment the home is auctioned off. At the auction, the home is sold to the highest bidder, or the bank can purchase it back. Occasionally, lenders will make an agreement with the borrower who was unable to make payments called a deed in lieu of foreclosure, in which the borrower gives the deed to the lender to satisfy the amount owed.
How Do I Know I am at Risk of Foreclosure?
Foreclosure catches many people off-guard, so it is important to watch for warning signs you may be at risk. Do you have enough in savings to cover your bills in the event you are unemployed for three to six months? Do you have a significant amount of medical bills to pay? Are you able to pay off the full balance of your credit cards each month? If the answer to any of these is no, you are likely at risk of foreclosure.
Questions About Foreclosure?
Foreclosure is something nobody ever wants to go through. If you are concerned you may be foreclosed upon, or if you are currently in foreclosure, contact M&A Law Firm, PC, today. Our compassionate, experienced real estate attorneys are ready to advise you of all your options.