What Is Foreclosure?
A foreclosure is usually an option taken up by lenders in mortgage agreements when the borrowers fail to meet the payment demands regularly for a specified period. The demands of the process differ per state, but once the lenders sense that they would likely not be paid, they attempt to cut their losses by putting the home up for sale.
The deed of trust contract in a mortgage grants home lenders the right to use the property as collateral security in cases where the borrowers fail to live up to the expectations and meet the demands of the mortgage agreement. At this point, the ownership rights are transferred back to the bank or lender of the property. For a homeowner who is still on a mortgage plan to be behind on payments, it is usually a result of several factors, including job loss, unplanned medical expenses, marital or spousal challenges, and high costs of maintaining the home. The sequence of a foreclosure runs such that the first missed payment is met with notice; if it progresses to two missed payments, a demand letter is handed out. It is quite serious, but the window is still open for the defaulter to make amends. A notice of default is served after three months, and this begins the countdown for the borrower to salvage the situation or risk outright forfeiture.
To initiate the process, the foreclosure department of the lender will receive the loan. From that point onwards, the lender has another 30 days to clear the debts in a duration known as the ‘reinstatement period.’ Beyond this point, the lender begins the foreclosure process, and it does not look good on the borrower’s credit report, where it is updated within a month or two of occurrence. It stays there for the following seven years before deletion. Reinstatement short refinances, and special forbearance is the most viable options to make up for the missed payments.
An individual who purchases a house on mortgage and has missed payments for three consecutive months risks foreclosure of the property.« Back to Glossary Index