The actual foreclosure process varies from state to state. However, every state follows a few general steps before the house is taken back by the lender. Real estate professional Jeff Adams recommends you first check the rules of your state to understand how foreclosure is carried out.
The general process is as follows:
Step #1 – Missed Payments
The foreclosure process starts with missed payments. Most lenders do not start the foreclosure process with just one missed payment. All lenders have a grace period in which they encourage the borrower to make the payment. After two or three missed payments, the lender will call you, email you, or send you notices requesting full payment of the missed installments.
Step # 2 – Judicial Sale or Power of Sale
Once it is determined that the borrower cannot make the payments, the lender moves to the next step of the process. The lender either sets up a judicial foreclosure process or opts for a power of sale process. All states have a judicial sale process but only 29 states offer a power of sale process.
Step # 3 – The Judicial Foreclosure Process
The mortgage lender will file a suit with the courts. The courts then send a notice to the borrower requesting payment. Most homeowners have about 30 days to respond to the notice. If the borrower does not reply to the notice, a judgment is entered by the courts and the lender owns the property. The lender then has the power to sell the home through auction.
Judicial foreclosures are very lengthy and can run as long as six months as judges do not like pushing homeowners from their properties. After the lender is allowed to sell, the auction usually takes place at the local sheriff’s office. The borrower is then served with an eviction notice to vacate the home immediately. During this period of time, the owner has time to make up the missed payments and retain his home.
OR
Step # 3 – The Power of Sale Process
This foreclosure method proceeds much faster. The mortgage lender will serve the borrower with a legal notice of default. The notice lists a clear grace period in which the homeowner can make payments and stop the foreclosure process. However, if the homeowner cannot make payments during the grace period, a deed of trust is created and the property is automatically transferred to a trustee. The trustee can sell the property at an auction. The auction will also be advertised through a public sale notice.
Jeff Adams, the #1 real estate trainer, states that most lenders prefer to work with the homeowner to give them a chance to pay off the loan. This may or may not be possible. In case the borrower cannot make the missed payments, the lender will take over the home and prepare it for sale. Both types of foreclosures are common and lenders usually try to sell the homes as quickly as possible to recover their capital.
