Knowledge is power, they say, and the sooner you learn about the foreclosure process the sooner youll prosper. Whether youre a potential buyer considering a foreclosed property or a homeowner facing foreclosure, understanding the foreclosure process leads to smart, informed decisions.
Since the steps in the foreclosure process vary little from location to location, the foreclosure process is pretty straightforward. Still, there are important differences in state and local foreclosure laws. Its a good idea to get up to speed on these laws for your area, as well as seek expert advice, when approaching the foreclosure process.
Foreclosure Process Timelines
On average the foreclosure process takes around 6 months to complete. After a property owner has officially defaulted on a loan, the foreclosure process can be as brief as two months in states folowing nonjudicial foreclosure processes, or more than a year in states utilizing judicial foreclosure methods. (See foreclosure laws).
After one or two missed mortgage payments (30 to 60 days) a property is considered to be in pre-foreclosure. By issuing a Demand Letter lenders can demand complete and immediate payment of the loan, plus late charges, penalties, and legal fees. If the homeowner doesnt pay the debt in full within 30 days, the foreclosure process moves forward in earnest.
Notice of Default
The foreclosure process legally launches after mortgage payments are neglected for 90 days. At that juncture the bank, an attorney, or local sheriff issues a Notice of Default (NOD) to the homeowner as a certified letter. The NOD outlines homeowner debt and last-ditch remedies for reinstating the mortgage. Meanwhile, a notice of foreclosure is recorded with a local government agency, the debt is publicly announced in a local newspaper, and a date selected for a foreclosure auction. Issuance of the NOD also triggers opportunities for investors and homeowners to negotiate short sales, which often prove beneficial.
The goal of this part of the foreclosure process is simple: recover the lenders losses. The opening bid is named by yhe lender initiating the foreclosure process. After bidding is complete, a purchase contract is issued to the high bidder. If no bids are received higher than the opening bid, the lender purchases the property and puts it back on the market.
As they say, its not over til its over. Following the auction, the original owners must immediately vacate the premises if they havent already done so. Money received is distributed among all parties involved with the foreclosure. Outstanding property taxes are settled, lenders reimbursed, and creditors paid. Any remaining money goes to the original borrower. In some states the foreclosure process includes a redemption period, meaning the original owners are allowed to re-purchase their propertyafter the auctionif they can produce the purchase price, fees, penalties, legal costs, etc. In some states the original borrowers financial obligations legally continue well after conclusion of the auction. Investors and homeowners alike profit by understanding the foreclosure process and applicable foreclosure laws.