What is Foreclosure?

Surely, you have heard the word ‘foreclosure’ several times but what is foreclosure exactly? If you were to define foreclosure simply, it is a situation wherein the homeowner-borrower is unable to make payments on his or her mortgage, (which includes principal and/or interest), giving the lender the power to seize and sell the property, as provided in the terms of the mortgage contract.

Knowing exactly what is foreclosure and the ways to avoid it would be useful knowledge for every homeowner

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The foreclosure process differs from state to state. Generally, the foreclosure process starts the moment your loan payment is 30 days past due. Henceforth, your mortgage lender may try to get in touch with you to work out a repayment schedule to bring your loan current. Bear in mind that the mortgage company is likely to begin foreclosure procedures within the next sixty to ninety days so do not ignore this attempt by your lender.

Calls will even be more frequent as your mortgage payment becomes even more past due. If you are 90 days behind on payment, the mortgage company will be sending a Notice of Default or NOD. At this point your lender has the option to turn your mortgage over to an attorney that will start the formal foreclosure process. The notice will give you a specific time period and the required amount to be paid in order to restore the default and avoid foreclosure.

Failure to pay the past due amount and foreclosure costs within this time will prompt your lender to set a foreclosure sale date. Your lender then sells the property at a public auction and then pay the mortgage holder with the proceeds from the sale of the foreclosed property. However, the process does not stop after the foreclosed property is sold; if the proceeds of the property is not enough to cover the outstanding debt and the costs associated with the sale, the mortgage lender can file deficiency judgment against you, resulting to a court order requiring you to pay the remaining balance to your lender.

It is possible to stop foreclosure, though, if you take the appropriate action. First of all, respond without delay once you are notified by your mortgage lender that your payments are overdue. One quick way to stop foreclosure is through a forbearance agreement. This applies to cases where a financial setback is temporary, and you will eventually have adequate funds. Forbearance is a short term plan wherein your lender agrees to accept a portion of the back payments now, and then the rest over the next few months. Don’t forget, though,that these make-up payments are on top of your regular mortgage payment each month. This may call for making sacrifices in your budget. If you’re positive you can overcome this hurdle, this is probably the quickest way to clear up the problem and avoid foreclosure.

Other ways to stop foreclosure quickly include getting a short refinance loan, signing a deed in lieu of foreclosure, or applying for a loan modification. The latter seems to be the best option because it involves lower monthly payments. This means a permanent change in your mortgage terms by reducing the interest rate and extending the repayment period to a level that you can afford.

With the economic difficulty happening even to the most income-stable families, knowing what is foreclosure and the programs to stop it will be your best defense.

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