Home foreclosure occurs when the homeowner falls behind in mortgage payments to the bank. The bank or lending company that made the original loan or the secondary buyer of the mortgage will begin the legal process of taking the property away from the homeowner and selling it at auction. The timeline may vary slightly due to individual lender policies.
The law recognizes both the lender's monetary right to a property they have a financial interest in, as well as the homeowner's right to live there without undue pressure. Until the early twentieth century, a person purchased property from another person. At that time, the law only protected the original owner and if the buyer did not make monthly payments, the original owner could legally evict them from the property without compensating them for their interest in the home or the land.
Today, foreclosure laws still protect the bank and ensure that it will recover its financial interest if the borrower does not pay his mortgage. However, a homeowner now has some protection from foreclosure if he acts quickly. If the foreclosed property sells at auction, any amount over the balance owed to the bank, will be paid to the homeowner.
The lender must wait until the homeowner falls behind in her payments before issuing a Record Notice of Default. While most lenders wait until the borrower is 3 months behind in her payments, they have the right to send the notice within 30 days of a missed payment. The borrower then has a redemption period during which she can try to raise the money to pay the missed payments and continue living in the home.
Homeowners sometimes make the mistake of thinking they may stay in the home, but that is not the case. After the redemption period expires, which varies from state to state but is usually around 90 days, a sale date is set. The homeowner now has 30 days before his home sells at auction. He may still redeem the home by paying all money due, but that option expires a few days before the auction date.
There are a number of options available to a homeowner who wants to stay in her home but can't pay the current mortgage amount. Chapter 7 or Chapter 13 bankruptcy, depending on the situation, will temporarily allow the homeowner to remain, but she must still pay the mortgage. Refinancing the entire mortgage for a longer period often reduces the monthly payment. Financing the payment in arrears is another option. The best way to remain in your home is to act quickly, as all these options will expire at some point during the foreclosure process.