There are over a million foreclosures every year in America. It is a common practice seen in the world of real estate, but many people don’t understand how it works. The process is intriguing based on how it is pursued, but should be understood by all homeowners. Let’s break it down for those who are unaware.

Initiated By Lender

A contract is signed when borrowing money (i.e. mortgage papers), and foreclosure details are all stated in these papers. It is the lender who will have the right to begin this process based on the details not being followed. They are legally able to make this decision.

The borrower is repeatedly made aware of these details before they pen the contract.

Missed Payment

The process begins if the borrower misses payments. It will take a few payments before the lender starts to send additional notices of foreclosure. This is what starts the process, and a legal representative is hired to start filing notices.

Court Notice Is Filed

If the payments continue to be missed, and the contract has been voided, it is time to move towards the court notice. The lender will be able to hire a legal representative who is going to send the notice through to the homeowner. They will then be expected to move forward with the process.

How many payments have to be missed for this to take place? In general, the lender is going to have it written in the contract which will decide what happens next. In most cases, it is three to six months.

“Grace Period” Is Initiated

The grace period is invoked at this point. The homeowner will be given a certain amount of days before it is going to be removed from their possession. This can range based on where a person lives. The lender will be able to send the notice and the grace period is going to begin. Within this time, the loanee has to make sure a deal is made between themselves and the lender. If no deal is made, the process moves onto the next stage as shown below.

It is important for all of the details to be listed in the notice that is sent.

Eventual Auction Begins

The final step is the auction. This is when the property has now gone on sale and is out of the hands of those who had “borrowed” funds to purchase it. The auction is done on the terms of the lender as they wish to retrieve as much value as they can.

Sometimes, the auction does not yield the amount the lender required, so they take ownership.

This gives them the right to do as they please with the property whether it is to sell it through other means or do something else. Most will get listed through an appointed real estate agent and will get sold for a reduced price. This is what a foreclosure is, and those who are signing on the dotted line while borrowing money should be aware of this.