What Is Foreclosure?

Learn about the process that allows a home lender to sell a house when a borrower falls behind on the monthly mortgage payment.

When you buy a home, as a part of the mortgage contract you agree that if you fall behind on your monthly payment (default on the loan), the lender can sell the home at auction and apply the proceeds to your loan balance. Before the house goes to auction, the lender must follow the procedures found in federal and state law in a process called  foreclosure.

Federal law (as of January 2017) places a  120-day waiting period  on a foreclosing bank. This period gives the homeowner time to catch up on arrearages or apply for a  loss mitigation program  (such as a mortgage modification) so that a borrower can keep the house.

After the expiration of the 120-day waiting period, the lender can move forward with foreclosure by complying with the foreclosure laws of the state where the home is located. Many states require the lender to start the process by sending a notice that gives the borrower a short period to catch up on missed payments. The actual foreclosure starts after the bank provides the required pre-foreclosure notices.

All states allow the lender to use a  “judicial” foreclosure  process that begins when the bank files a lawsuit in court. The homeowner can respond to and defend the suit. The matter will proceed through the litigation process, and, if the bank wins, the court will order the home sold at auction.

Some states allow a lender to use a streamlined  “nonjudicial” foreclosure  procedure that consists of following steps outlined in state law. In many cases, the bank will be required to give the homeowner time to bring the account current. Additionally, the lender must notify the owner of the sale date, and, in some cases, publish the sale date by advertising it in a newspaper or posting it in a public place. After completing the steps, the lender is free to sell the home at auction without first receiving approval from the court.

(You can find out more in  State Foreclosure Laws.)

 

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