What Is Foreclosure

Your mortgage is the most important bill we have to pay every month. Besides credit card bills, we also have to make sure we don't miss our other monthly payments. When we fail to pay the mortgage; foreclosure happens and we lose our home.



So what is a "Foreclosure"?



When you miss a number of payments; your mortgage lender has the right to foreclose on the home by selling or repossessing the property. In most cases these properties are auctioned.



In most cases the usual number of payments that borrowers miss before their house goes into foreclosure is 3 months. In other cases the lender may accelerate the payment to give the borrower a chance to settle his or her debt/catch up on missed payments. In this case however they will require the borrower to pay all the missed payments at once.



Lenders can choose several types of foreclosure.



Judicial foreclosure



In this case the lender sues the homeowner. If the owner of the house does not respond to the lawsuit, the lender wins. The property is then put up for auction. A court official will be in charge of the auction. Participants will have to compete with the mortgage lenders bid. If no one out bids the mortgage lender he repossesses the house. Otherwise, the deed will go to the highest bidder. This is normally referred to as a "courthouse auction".



Foreclosure by the power of sale



The deed of the house goes directly back to the mortgage lender. The house is then sold by a real estate agent. Proceeds earned from the sale will be used for paying off the amount owed by the former homeowner.



The deficiency judgment is the amount left after the proceeds from the sale cover the mortgage owed by the previous homeowner. The previous homeowner is liable for it.



Strict foreclosure



The court orders the borrower to pay the mortgage in a certain period of time. If the borrower fails the property will go directly back to the mortgage lender without any obligation to sell it. In this case (as silly as it sounds) normally the tenants are evicted from the home via the local sheriff, and then the house sits empty until such time as the lender can sell it. (In the event it is a rental property,and the tenants are NOT the owners,they are still forced out in most cases.)



Judicial and foreclosure by power of sale are the most commonly used methods in United States. Other states use other methods. Strict foreclosure was originally used but is now only utilized by a few states such as Vermont and New Hampshire.