foreclosureForeclosure occurs when the homeowner loses the rights to the property when he or she fails to pay the mortgage on time.

When a lender lets you borrow money without having to put up anything as collateral then that person or company can take the matter to court when you are unable to pay. This situation is inevitable with an unsecured loan. With a secured mortgage loan though the lender may take a loss on the loan if you default they also recover a considerable part of the debt by possessing your property.

How It Starts

Foreclosure is a lengthy process; it starts with the borrower failing to meet the terms of the mortgage. The lender may wait up to three months to half a year before they get a public notice that clearly states that the borrower has defaulted on their mortgage. Depending on the laws of the state the lender might post the notice on the door of the borrower’s property. The public notice exists to let the owner know that they are in danger of losing their house and may be evicted.

Pre-Foreclosure

After the public notice is issued the borrower is given a temporary time known as the ‘pre-foreclosure period’. During this period the borrower is able to work out an agreement with the lender, if the lender allows it. If the borrower however pays off the default during this period, foreclosure is made invalid and the borrower successfully dodges eviction. Other options for the borrower is through a Short Sale or if the lender calls a truce and asks for the outstanding amount. The pre-foreclosure period lasts about 120 days.

Auction

On the other hand if the borrower does nothing to repay then at the end of the grace period the lender can choose a date for the house to be sold at an auction. Auctions can be held in any of the various places like the steps of a county courthouse, a convention center, the property itself or even in the trustee’s office.

However if they do not find anyone willing to pay cash for the property then the lender takes ownership of the property, it becomes a Bank Owned Property. Some prefer to sell these at liquidation auctions.

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