With recent trends in the stock market and housing market, many have become curious exactly what goes on during a foreclosure. Unfortunately, foreclosures are not a pleasant experience for anyone involved in the process. For the borrower, the process can be very emotionally trying and carries a significant amount of stress with it. For the lender, it can be a very large hassle just to remove the former owner, repossess the home and put it back on the market. In a market such as our current one, it can be very difficult for the lender even to re-sell the home in question. Some lenders even will accept what they call a “short sale” to regain as much money as possible from the failed venture. However, short sales are not always accepted by a lender; therefore, foreclosure has become more and more common.
Exactly how a foreclosure proceeds depends on the amount of payments that the borrower has failed to submit. If the person in question is only one payment behind, he or she is most likely not at risk for foreclosure proceedings. However, that is at the discretion of the bank or company that lent the money for the purchase of the home.
Things do get more serious the longer the payments fail to be made, though. After a failure to make payments for 3 months, the proceedings can be handled by one of two ways. One of these is the “judicial sale” and the other is the “power of sale.”
The main difference between these two options is that in the judicial sale, the proceedings actually are done through a court of law. To take this route, the lender must file a suit with the court, then the court issues a 30 day notice during which the borrower has the chance to make up the payments to avoid foreclosure. If the borrower fails to make the required payments, the property is turned over to the local sheriff, who sets up an auction to sell the house. When the house is sold, the sheriff then serves a notice of eviction.
In a power of sale, all of the proceedings are handled by the mortgage company, itself. Instead of having the court of law issue the notice for payment, the company sends that notice out requesting the required payment. The company also draws up a temporary deed that is in the name of a trustee. If the payments are not made in the allotted time, the trustee then sets up an auction and sells the home. All of these proceedings are carried out under the supervision of the court to make sure that all of the actions of the company and its client are carried out in a legal manner.
In general, these are the two major types of proceedings that occur when a foreclosure becomes necessary. As discussed earlier, most companies do not particularly enjoy conducting foreclosure proceedings. Usually the lender has to take a loss when the house is re-sold. This factor often leads lenders to give a “grace period” to help the borrower make payments. However, when and if foreclosure becomes necessary, the lender is eventually forced to take this course of action.
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