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How Does the Foreclosure Process Work?

The foreclosure process can vary from state to state, but in general it follows the same pattern throughout the country. Foreclosure begins when a mortgage goes unpaid and ends when a property is sold at auction. Below you'll find a general description of the foreclosure process, but be sure to learn more about specific foreclosure laws in your state so that you can be on top of deadlines and special rules.

Missed Mortgage Payments

The foreclosure process begins when a home or business owner misses payments on their mortgage. Sometimes these missed payments are just late, and as a result, every state provides a certain amount of time before a lender can move to officially begin foreclosure proceedings. Generally, a homeowner will have up to a month after a missed payment to pay off the debt without incurring any penalties. But if the missed payment remains unpaid, the lender will begin the foreclosure process by issuing a Lis Pendens, also known as a Notice of Default.

Lis Pendens and the Notice of Default

Once a mortgage has gone unpaid for a significant amount of time, it is considered a default on payments, and the lender can begin the process of foreclosure. This is marked by the lender issuing a Notice of Default to the homeowner and local authorities. In some cases, a lender may have to file the Notice of Default in court in order to obtain legal permission to move ahead with foreclosure proceedings. In other cases, a lender may be able to pursue a foreclosure without a court's supervision. This all depends on the local laws and customs, as well as the stipulations of the mortgage agreement.

The Pre Foreclosure Period

In either case, the lender is required to file the Lis Pendens or Notice of Default with the County Clerk's office. This informs the county officials that a foreclosure is beginning, and marks the beginning of the pre-foreclosure period. The pre-foreclosure period is the amount of time that must pass between the issue of a Notice of Default and the foreclosure sale, and it can vary greatly from state to state. Some states, such as Texas, may only require a few weeks or a month before a foreclosure sale can occur. Other states may require 3 months, 6 months, or even a year to pass. During this time, the homeowner can stop the foreclosure process by paying off the debt owed on their loan. If the debt remains unpaid, the property will go up for sale.

Scheduling a Foreclosure Sale

Foreclosures are sold through public auctions. Generally, a foreclosure sale cannot be scheduled until after a Notice of Default is issued. Once the legal pre foreclosure period expires, the auction will go on as previously scheduled. Most foreclosure auctions are presided over by either a trustee of the lender, the local Sheriff's office, or a county official, depending on local law and custom. The person in charge of the sale will also decide the minimum bid required to win the property with the lender. This helps guard against the lender losing too much money on the foreclosure sale. Anyone may bid at auction, and they are usually required to put at least a down payment on their winning bid directly after the sale.

Unsold Properties and REOs

If the property does not generate enough interest to sell for the minimum bid at auction, then the trustee of the sale will award control of the property to the lender. At this point, the property becomes an REO, or 'real-estate owned' property. The lender will then set a price for the property and seek to sell it themselves in order to get back the amount of money still owed on the unpaid mortgage through a sale. REOs are popular ways for homebuyers and investors to buy property. Ultimately, potential buyers will place offers on the property directly to the lender, until the lender accepts an offer. At that point, the property will be awarded to the new owner, and the foreclosure process officially ends.

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California Nevada Oregon Washington Idaho Montana Wyoming Utah Arizona New Mexico North Dakota South Dakota Colorado Minnesota Hawaii Alaska Maine New Hampshire Vermont Massachusetts Rhode Island Connecticut New York Pennsylvania New Jersey Delaware Maryland Washington DC Virginia West Virginia Ohio North Carolina South Carolina Georgia Florida Kentucky Tennessee Indiana Michigan Wisconsin Nebraska Illinois Iowa Alabama Mississippi Kansas Missouri Arkansas Louisiana Oklahoma Texas