How Does Home Foreclosure Work?

How Does Home Foreclosure Work?


The home foreclosure process begins when a borrower defaults on their mortgage by not making the payments. The lender will then file a formal notice in court called a Notice of Default, or Lis Pendens, indicating they are reclaiming the property in order to recover the amount owed on the loan. Once this process has begun, the loan is now in what is called a pre-foreclosure period and the borrower has a limited amount of time to reinstate the loan if they so choose, or to pay off the entire amount of the loan. The amount of time for the foreclosure process varies by state, but an average is six months. Typically, once the borrower has defaulted on the loan by more than 30 to 60 days, the lender will file the Notice of Default. The average time between a Default Notice and the Notice of Sale is 90 days. Sale dates are usually set within 30 days of the Sale Notice.

Foreclosure Options

Homeowners faced with foreclosure have a few options available to them. During the pre-foreclosure process, they can reinstate the loan by paying off the defaulted amount and bringing the loan current. The amount of reinstatement will also include attorney's fees, which can range from several hundred to several thousand dollars. Presently, finding alternative financing while you're in the foreclosure process is next to impossible. Government organizations like offers free foreclosure prevention advice and assistance which may work for you. Another way to avoid foreclosure is to sell your home during the pre-foreclosure period. A third party buys your home allowing you to pay off your loan and avoid having a foreclosure listed on your credit. Another option for homeowners is a short sale. The definition of a short sale is the sale of a home for less money than is currently owed the lender on the outstanding mortgage being foreclosed on. The lender has to agree to accept less than is owed before a short sale take place.

Final Step

If you cannot reinstate your loan or sell your home during the pre-foreclosure period, then your home will be auctioned to the public, often on the steps of your local courthouse. Buyers purchasing homes at auction are expected to pay the full amount on the day of the auction. If you are still living in your home at the time of the auction, the new buyer may choose to evict you or work out a rental agreement with you. If your home does not sale at auction, the lender will likely evict you while attempting to sell the property, either through a real estate company or in future auctions.