Before you can decide what to do about your foreclosure, you need to get a general picture of how foreclosures work in your state. You might feel like skipping this step and getting on with deciding what to do—get right with your lender, fight the foreclosure, or walk away with the help of a short sale, deed in lieu of foreclosure, or the bankruptcy court. But you can’t make smart decisions without some knowledge of how a foreclosure proceeds.
At the very least, you need to know what’s coming if foreclosure looms. Here are the big issues:
Here are a few terms you may run into. As with any system, getting the words right is half the battle.
Mortgages and deeds of trust. When you got a loan to buy your house, you agreed that the loan would be secured by the house. That meant that if you defaulted on your payments, the owner of the loan could foreclose—that is, take ownership of the house and evict you. Security agreements such as these are filed (recorded) in the local land records office. In some states this security agreement is termed a mortgage, while in others it’s called a deed of trust. With a few exceptions, mortgages can only be foreclosed in court, while deeds of trust can be foreclosed without going through court.
First, second, and third mortgages. The first loan you took out to buy your home is called the first mortgage. If you also borrowed a lesser amount for the down payment, or if you later took out a loan against your equity, this later loan is called a second mortgage. And finally, if you took out a third loan or arranged a line of credit to be secured by your home, you have a third mortgage. â