Foreclosure Basics

A lender can foreclose by taking over the mortgaged property and trying to recover the amount due on a defaulted loans. A default occurs when a borrower misses one or more monthly payments. However, it can also occur when the borrower fails other terms of the mortgage agreement.

Knowing What A Foreclosure Is

 
 

The legal basis for foreclosure is a mortgage or trust contract. This gives the lender the right to use a property as collateral if the borrower fails the terms of the mortgage document. While the process is different from one state to another, the foreclosure procedure generally starts when the borrower defaults on a mortgage payment or fails to make a timely payment. The lender sends a missed payment notice to indicate that it has not received that month's mortgage payment.

The lender will send a demand notice to the borrower if they miss more than two payments. Although this is more serious than a missed repayment notice, the lender may still make arrangements to allow the borrower to catch up.

After 90 days of non-payment, the lender sends a notice. The lender will give the loan to its foreclosure department. The borrower has a period of 30 days to pay off the outstanding payments and reinstate the loan. This is known as the "reinstatement time." If the homeowner fails to make the missed payments, the lender will start to foreclose.

Avoiding Foreclosure On Your Property

There may be options to avoid foreclosure even if the borrower has missed one or two payments. There are several options:

 

Reinstatement:

During the reinstatement period, the borrower may pay back all owed including missed payments, interest, and penalties before a specified date in order to get back on track.

Short Refinance:

The new loan amount will be less than the current balance. To avoid foreclosure, the lender might forgive the difference.

Special Forbearance:

If the borrower is experiencing temporary financial hardship such as medical bills, or a drop in income, the lender may be willing to reduce or suspend payments for a specified amount of time.