We fear what we don’t understand. The concept of “foreclosure” is frequently misunderstood and frequently feared. Understanding the concept of foreclosure with precision maximizes your ability to take action to improve your situation!
What is Foreclosure?
- A legal proceeding which culminates in a mortgage lender selling or repossessing the home of a borrower who stopped making mortgage payments.
- A series of events that begins when a homeowner defaults -- or stops making mortgage payments -- usually because of a life crisis which impacted their income (examples: death, disability, divorce, etc.) or because their loan payments increased beyond their ability to pay them (example: when an adjustable rate mortgage begins to adjust). The series of events ends when the mortgage holder sells the home at auction, or takes the home back from the owner.
- Homeowners: Foreclosure starts when you are at least 90 days behind on your mortgage payment. Then, the foreclosure process is represented by a series of notices you get in the mail and even posted on your front door over a 4-6 month period of time telling you that you have two options: (1) either bring your past due mortgage current or come to some compromise with the lender, or (2) your home will be sold and you will have to move out. At the end of these notices is usually an auction, where the lender sells your home on the steps of the county courthouse or simply takes ownership of it, and you move out.
Your options, rights and responsibilities change depending on what phase or stage of the foreclosure proceeding your home is in at any given moment.
- Homebuyers: Foreclosure is a series of phases of "distressed" property ownership. During your house hunt, you might run into properties whose current ownership status is all over this continuum. Each place on the spectrum presents a different set of considerations -- legally, logistically and from a bargaining perspective -- impacting how desirable (or not) a property might be to you, as a buyer.
Bottom Line: When you buy a home using mortgage money, your promise to repay the mortgage loan is secured by the home itself. If you stop paying your mortgage for more than a 90-day period of time, the mortgage lender will set the legal wheels in motion to take the home back. Those legal wheels are, collectively, called "foreclosure."