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What is a Foreclosure?

Foreclosure is the process when a homeowner’s rights to a property are forfeited because of their failure to pay the mortgage.  If the owner cannot pay off the outstanding debt or sell it via a short sale, the property then goes to a foreclosure auction.  If the property does not sell at auction, it then becomes the property of the lending institution.

Five Stages to a Foreclosure:

• Missed Payments
• Public Notice
• Pre-Foreclosure
• Auction
• Post-Foreclosure

Missed Payments:

Foreclosures start when a borrower fails to make timely mortgage payments.  This may be due to hardships such as unemployment, divorce, death, or a medical issue.  Other times, a borrower may decide to stop paying their mortgage because the property might be “underwater” (mortgage exceeds the value of the home).

Public Notice:

After several missed payments the lender records a public notice with the County Recorder’s Office indicating the borrower has defaulted on their mortgage.  This official notice is intended to make the borrower aware he is in danger of losing all rights to the property, and may be evicted from the premises.

Pre-Foreclosure:

During this time the borrower can work out an arrangement with the lender via a short sale or pay the outstanding amount due.  If the borrower pays off the debt during this phase, foreclosure ends and the borrower avoids home eviction and sale.  If not, the foreclosure process continues.

Auction:

If the default is not remedied by the prescribed deadline, the lender sets a date for the home to be sold at a foreclosure auction.  The notice of sale is recorded with the County Recorder’s Office and a notification is delivered to the borrower, posted on the property, recorded on the County’s Website, and printed in the newspaper.  The location of the auction will also be published.

Before the auction the borrower still has an opportunity to pay off the debt.  If not, the home is auctioned to the highest bidder or the bank buys back the property.

Post-Foreclosure:

If the property is not purchased at the foreclosure auction, the lender takes ownership and it becomes what is known as a bank-owned property or REO (real estate owned).

Bank-Owned properties are usually listed for sale with a local real estate office.

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