Home Mortgage Foreclosure - The Basics

by Greg Cryns


            Whether you’re purchasing a new home or have been a homeowner for many years, it’s important to understand how home foreclosure works.  In today’s real estate economy, the world foreclosure is tossed around more and more.  But what does it really 

mean?  When you go through foreclosure, you basically give up your rights to your property.  Your home becomes property of the lender and you no longer have any rights to it and the bank then usually tries to sell the property to get it off their hands.

            People become part of the foreclosure process when they are unable or unwilling to make payments on their mortgage.  For many people, the inability to make payments is due to illness, unemployment, divorce, or some other unforeseen circumstance.

            Many people also lose their homes because of rising interest rates on adjustable rate mortgages.  In some cases a higher interest rate can almost double a mortgage payment.  If this happens and your income can’t cover the increase, you may not be able to make payments.

            In many states, you’ll be considered “in default” on your mortgage after missing payments for 3 months.  At this point you’ll receive a letter from your lender telling you that you’re in default and that the foreclosure process will begin.

            At this point, it’s best to contact your lender and try to make arrangements.  Your lender would rather find a way to work with you in most cases rather than losing more money by having to sell the property again.

            However, if you continue to not make payments, you’ll eventually receive a notice of foreclosure.  This is to let you know that they’re beginning to make arrangements to take legal possession of the home and sell it.

            The process usually takes about 6 months from beginning to end.  During this time many people continue to live in their home.  In fact, some people live in it all the way through the entire process until a new owner takes possession of it.  The new owner can then follow eviction procedures and force you to move out.  However, it’s usually better if you go ahead and move out of your home before this happens.

            During the process of foreclosure, you may have companies approach you to help salvage your mortgage.  Many of these companies provide fraudulent claims that they can help you.  They take your money and don’t provide much of a service.  Avoid these companies.

 
Short Sale

            Before you get to the point where you must foreclose on a house, it’s a good idea to try to sell your home.  A short sale will allow you to sell it for less than you owe.  Sometimes banks allow you to do that and they forgive the remaining balance because it’s still cheaper for them than having to follow foreclosure procedures.  In addition, you can also try to refinance at a lower interest rate to lower your payments.