Foreclosure Fraud Alert

HOW FORECLOSURE WORKS

Foreclosure is the end of ownership and rights over a property in order to sell it for the purpose of paying a debt.  For this to occur, the following items must be happen:

1. The debt must be collateralized by the property to be sold.

2. The debt must be in default. This means payments are not up to date.

3. The creditor must fulfill the legal requirements of the state were the property is located.

 Contrary to common homeowner belief, the bank does not own the home. Unlike an auto or boat loan (where the bank's name is on the title), real estate is owned by the borrower. The property is collateral to the loan. "Foreclosure" is not "repossession". Foreclosure does not happen immediately after an owner is late on the mortgage payment. The foreclosing creditor must take specific legal steps. Each state has different laws governing the foreclosure process.

Foreclosure is the ending event of a legal process and process is as follows.

A property is not truly foreclosed until it has been sold at auction according to the state's foreclosure process.  That "the lender is foreclosing" or that a "property is in foreclosure" really means that the lender has initiated the foreclosure process and is proceeding through the legal process to foreclose on a property.

(The following picture is a general timeline and will vary by state.)

Typically, as soon as there is a default in payments, the lender initiates a collection process. This is known as the collections period. This is the best moment for a homeowner in default to reinstate and bring any late payments up to date. The length of a collections period varies with each lender. However, in general terms - if after three months the homeowner has not resolved the late payment situation the lender takes more drastic steps.

The foreclosure process starts if the creditor is unable to collect on late payments. The foreclosure process always starts with a legal notice (notice of default) to the owner stating that if the loan is not paid or reinstated within a specific period of time, the property will be sold at auction in order to pay the debt. This period is known as pre-foreclosure.

The length of the pre-foreclosure stage depends on each state's law. The owner has until the foreclosure date to resolve the default. Solutions for resolving the default range from reinstatement (bringing the loan current by catching up on past due payments), refinancing, paying off the debt in full, or the selling the property to another party in order to satisfy the debt. If none of the above happens by the auction date, the property will be sold to the highest bidder. Foreclosure is this short and specific event. The proceeds from the debt are used to pay the creditors. Anything left belongs to the owner of the foreclosed property.

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