Homeowners often find themselves unexpectedly faced with a financial and/pr physical inability to manage their property sue to unemployment, divorce, medical challenges, and even death. At such times, a homeowner’s lending institution will intervene and enforce payment of the debt by seizing and selling the estate. During this process, referred to as foreclosure, the estate officially becomes the absolute property of the lending institution.
Should I be worried about foreclosure: Secured vs. Unsecured loans?
You should always be aware of the specifics of foreclosure, since most people find themselves in need of a loan at some point in their lives. However, anyone who has taken out a secured loan is more likely to be impacted by foreclosure than are individuals who have unsecured loans, in which the lender relies on the promise of repayment without collateral. While interest rates for unsecured loans tend to be higher, secured home loans generally hold home being purchased with the funds as collateral that can be taken back in the foreclosure process upon default.
What does the process look like?
Foreclosure is a legal process that occurs according to federal, state, and local laws, and can take upwards of a year and a half from start to finish. It typically begins when the homeowner defaults by failing to make mortgage payments to the lending institution at the appointed time. At the point, the lending institution will make a formal demand for payment by sending a Notice of Default (NOD) notifying the homeowner of the intent to take ownership of the property and evict tenants. While states vary, the lender usually issues the NOD after the homeowner’s mortgage payments are three months delinquent.
Once the NOD is sent:
· Foreclosure sale date is established if the default isn’t corrected and the loan brought current within three months;
· A Notice of Sale is
o sent to homeowner,
o posted on property,
o recorded at County Recorder’s Office in the county where the property is located,
o published in local newspapers over a three-week period.
· Foreclosure Trustee Sale occurs, usually at the county courthouse in which the property is located. (Specific time/location designated in Notice of Sale).
· At Trustee Sale:
o opening bid is set by the foreclosing lender, and usually equals the outstanding loan balance, interest accrued, and additional fees,
o property is publicly auctioned to the highest bidder, who must pay the high bid price in cash (typically with a deposit up front and the remainder within 24 hours), and
o winner receives the property deed.
If there are no bids higher than the opening bid, the property is purchased by the attorney conducting the sale for the lender, at which point is becomes a REO (Real Estate Owned).
Bottom Line: Communication is essential! Your lender wants to keep you in your house as much as you want to stay there. Ask what you can do to avoid foreclosure and keep you at home where you belong.