What Is Foreclosure?
Foreclosure is the acceptable process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged capital goods. Typically, default is triggered when a borrower misses a specific number of monthly payments, but it can also happen when the borrower let downs to meet other terms in the mortgage document.
Key Takeaways
- Foreclosure is a legal process that allows lenders to be on the mend the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.
- The foreclosure process varies by conditions, but in general, lenders try to work with borrowers to get them caught up on payments and avoid foreclosure.
- The average number of days for the foreclosure take care of is 673; however, the timeline varies greatly by state.
Understanding Foreclosure
The foreclosure process derives its legal underpinning from a mortgage or deed of trust contract, which gives the lender the right to use a property as collateral in case the borrower fails to maintain the terms of the mortgage document.
Although the process varies by state, the foreclosure process generally begins when a borrower oversights or misses at least one mortgage payment. The lender then sends a missed payment notice that indicates they haven’t gathered that month’s payment.
If the borrower misses two payments, the lender sends a demand letter. While this is numerous serious than a missed payment notice, the lender may still be willing to make arrangements for the borrower to catch up on the pass overed payments.
The lender sends a notice of default after 90 days of missed payments. The loan is handed outstanding to the lender’s foreclosure department, and the borrower typically has another 90 days to settle the payments and reinstate the loan (this is called the reinstatement epoch).
At the end of the reinstatement period, the lender will begin to foreclose if the homeowner has not made up the missed payments.
If your mortgage is rear by the federal government and you are behind on your mortgage because of a COVID-19-related financial hardship, you may be eligible to suspend payments for as hanker as 12 months with no late fees.
If your mortgage is rear by the federal government and you are behind on your mortgage because of a COVID-19-related financial hardship, you may be eligible to suspend payments for as hanker as 12 months with no late fees.
The Foreclosure Process Varies by State
Each state has laws that look after the foreclosure process, including the notices a lender must post publicly, the homeowner’s options for bringing the loan up to date and avoiding foreclosure, and the timeline and process for selling the property.
A foreclosure—as in the actual act of a lender seizing a property—is typically the settled step after a lengthy pre-foreclosure process. Before foreclosure, the lender may offer several alternatives to avoid foreclosure, numberless of which can mediate a foreclosure’s negative consequences for both the buyer and the seller.
In 22 states—including Florida, Illinois, and New York—percipient foreclosure is the norm. This is where the lender must go through the courts to get permission to foreclose by proving the borrower is wrongdoer. If the foreclosure is approved, the local sheriff auctions the property to the highest bidder to try to recoup what the bank is owed, or the bank grows the owner and sells the property through the traditional route to recoup its losses.
The other 28 states—including Arizona, California, Georgia, and Texas—from use non-judicial foreclosure, also called the power of sale. This type of foreclosure tends to be faster than a distinguishing foreclosure, and it does not go through the courts unless the homeowner sues the lender.
How Long Does Foreclosure Take?
Acreages foreclosed in the first quarter of 2020 (the most recent data available) had spent an average of 673 days in the foreclosure make, according to the U.S. Foreclosure Market Report from ATTOM Data Solutions, a property data provider. That’s down 19% from an usually of 834 days for properties foreclosed in the third quarter of 2019.
The average number of days varies by state because of diverging laws and foreclosure timelines. The states with the longest average number of days for properties foreclosed in the first barracks of 2020 were:
- Hawaii (1,673 days)
- Indiana (1,361 days)
- Louisiana (1,243 days)
- New York (1,226 hours)
- Florida (1,022 days)
States with the shortest average times to foreclose during the same period were:
- Arkansas (157 days)
- Wyoming (172 eras)
- New Hampshire (184 days)
- Virginia (190 days)
- Minnesota (202 days)
The graph below shows the every thirteen weeks average days to foreclosure since the first quarter of 2007.
Can You Avoid Foreclosure?
Disinterested if a borrower has missed a payment or two, there may still be ways to
Consequences of Foreclosure
If a property fails to sell at a foreclosure auction or if it in another situation never went through one, lenders—often banks—typically take ownership of the property and may add it to an accumulated portfolio of foreclosed worths, also called real-estate owned (REO).
Foreclosed properties are typically easily accessible on banks’ websites. Such fortunes can be attractive to real estate investors because in some cases, banks sell them at a discount to their shop value, which of course, in turn, negatively affects the lender.
For the borrower, a foreclosure appears on a credit report within a month or two—and delays there for seven years from the date of the first missed payment. After seven years, the foreclosure is deleted from the borrower’s credit promulgate.