What It Is
If you default on a mortgage loan, foreclosure takes away your ownership rights to the property and gives them to the lender. The lender then sells the property for repayment of the debt. Foreclosure is not repossession of the property. When foreclosure occurs, the lender initiates legal proceedings because the loan is in default.
How the Process Begins
The foreclosure process begins with letters from the lender to the borrower stating that payment has not been received and must be remitted immediately. A borrower should not ignore letters from the lender, but should contact the lender immediately. Not opening your mail will not excuse you from impending legal action. If you fail to reply after 60 days of default, you will receive a Notice to Accelerate that demands payment to bring the loan current. The entire delinquent amount must be paid in addition to any late fees. A partial payment will not be accepted.
The Demand Letter
At this point, if a borrower does not respond with payment by the date indicated in the Notice to Accelerate letter, an attorney will be hired to forward a demand letter. The demand letter is formal notice that if the loan is not brought current, the lender will file foreclosure proceedings with the court system.
Leading to the Notice of Sale
A Notice of Default is a court document indicating the entire amount of the debt that needs to be paid. The borrower is given 20 to 30 days to respond to this judgment notice. After that, the attorney will file a Notice of Sale, which will set a sheriff's auction date. It should be noted that at any point throughout this process, foreclosure can be stopped or postponed. Lenders usually are willing to work with the borrower for repayment of the loan whether by refinancing the loan, reinstating the mortgage loan, the borrower filing for bankruptcy, deed in lieu of foreclosure or selling the property to recover equity in the home.
Beware of Foreclosure Scams
Be aware that there are foreclosure scams out there. If a company contacts you claiming that it can stop foreclosure proceedings immediately if you sign a document appointing that company to act in your behalf, you could be signing over the deed to your property. Never sign any document without reading it carefully and fully understanding the terms. Seek the advice of an attorney. You should never make mortgage payments to anyone other than your lender. Be particularly cautious about any company that offers to lease back your home as a way for you to buy it back over time. While there are legitimate foreclosure buyback companies out there, they are in the business of making money. Even though you may be offered a lower monthly lease payment in exchange for transferring your title of ownership, often you will be buying back your home at market value, which will cost you a whole lot more money in the end.
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