How Does Foreclosure Work

How does foreclosure work? What happens during the foreclosure process? There are two major phases to the foreclosure process:

Pre-foreclosure is when you first start missing your mortgage payments. Your lender will first try to contact you by letter. After the second month, they will try by phone. This is the best time to start working with your lender. As soon as you know that you're going to start running into problems you should contact your lender. Your bank does not want your house. They make their money off of the home mortgage not the foreclosed homes sitting on their books. But if they send you notices and you don't respond they will move forward in the process.

When the third payment is missed and you have not worked out a suitable payment arrangement, the lender can then demand payment in full. This is called accelerating the note. After this point they do not have to accept anything but full payment. Usually you can still work on arrangements by working with the loss mitigation department.

The next phase is the formal foreclosure phase.

What happens during this part of the foreclosure process is that you will receive a certified letter of foreclosure from the lender. This letter is notifying you that they will be setting a court date to get legal permission to exercise their right to repossess your home. At the hearing the court will issue a foreclosure order. The lender now has permission to sell your home at auction.

There is a specified waiting period and after that the lender will publish a legal notice of the foreclosure sale in the paper. This is sometimes called an auction, sheriff's sale or foreclosure sale. The person with the highest bid is now the owner of the house and can take possession. If you are still in the home it is up to the new owner to perform the eviction.

If there is any debt still owed after the sale, the previous homeowner is still responsible for that.

Do not wait until the last minute. There are still other options that you may have if you do not have the funds to make all the back payments.