What is foreclosure ?
A foreclosure proceeding is a proceeding to extinguish all rights, title and interest of a property owner in order to sell a property and satisfy a lien against it.
To put it simple, a foreclosure is the legal process by which a property, pledged as collateral for a debt, is sold to satisfy that debt. Call it a property repossession.
When you obtain a loan from a lender, you agree to two very important conditions:
- you promise to make periodic payments, according to the terms and conditions of the loan
- you pledge the property as collateral for the loan.
Foreclosure proceeding
- Residential mortgage payments are usually due on the 1st of each month, with a grace period thru 15th of each month. Payments made after 15th will incur a late charge equal to 5% of the payment amount. This clause is a part of Truth In Lending agreement and a part of a mortgage application that borrower signs.
- Payments that are more than 30 days past due are reported by the lender as delinquent to the credit reporting agencies.
- If a mortgage is delinquent for more than 90 days, lender may file an intent to pursue a foreclosure proceeding. Depending on the state, borrower may still have 30 days or so from the date of such lender's filing to enter into a forbearance agreement (negotiated agreement) with lender to bring a mortgage up to date.*
- Some states allow borrower a right of reinstatement. This right permits borrower to bring all mortgage delinquencies current within usually 60 - 90 days or so after borrower receives a foreclosure notice.*
- Still some states allow borrowers to pay off the loan in full within certain time frame to avoid the foreclosure. It is called redemption.*
Foreclosure can last a few months or years depending on the situation. It cost lenders time and monies and as you can see from the above is truly the last resort.
Once a lender obtains a judgment and redemption period* expires, property then is sold thru a judicial sale. Borrower has no rights to the property whatsoever and must vacate it.
Worst thing to have on your credit
Foreclosure is viewed by lenders as the worst possible offence. Worse even than Chapter 7 bankruptcy. These days there are few programs where you can buy a house very shortly after bankruptcy. Not so with foreclosure.
For more information see http://www.hud.gov/foreclosure/index.cfm
* Disclaimer: check your state laws and consult qualified attorney.
