Foreclosure is a term becoming more common in American households every day. There are many causes for foreclosure, all of which relate to the financial abilities of the homeowner to be current with mortgage payments. The list of reasons include: job loss, business failure, payment increase or mortgage adjustment, divorce or death of a spouse, illness, relocation, reduced income, mortgage fraud, and predatory lending; other causes can be identified.
When the homeowner/borrower experiences one or more of the named conditions and finds it impossible to make the payment on the mortgage, there is risk of losing the property through the legal process of foreclosure. There are three phases of the foreclosure process: Pre-foreclosure, Foreclosure/Auction (or sale), and REO.
The start of the pre-foreclosure phase is when the borrower misses payments. The lender attempts to contact the borrower by typically mailing letters to the borrower of the missed payments. Unfortunately, when this happens, all too often, the homeowner fails to respond or communicate at all with the lender. It is often the case that when visits are made with the homeowner by a real estate professional when discussions begin about the delinquency or possible foreclosure, the homeowner has stacks of unopened mail from the lender. If the homeowner has any interest or desire to try to save their home, even when payments have been missed, they must not be in denial regarding the situation.
The next step in the foreclosure process following the efforts by the lender to contact the borrower comes about when the lender decides that the delinquency has gone on to a point that the condition cannot be ignored any longer. As provided by state law and per the provisions within the loan documents, the lender sends a notice of default (NOD), officially starting the foreclosure process. Typically, this NOD is mailed to the property, to the homeowner, and is filed with the Office of the County Recorder. Depending on the provisions of the state and the document, the borrower has a period of time in which to reinstate the loan by bringing it current or otherwise curing the delinquency with the lender.
If the borrower does not reinstate the loan within the required amount of time, notice of sale is recorded and the sale is published by advertising the place and time of the sale. This leads to the second phase of the foreclosure process.
The foreclosure sale, known as the auction, trustee's sale, or sheriff's sale, is conducted as published. This is generally known to occur on the courthouse steps. The published sale notice will indicate the terms of the sale as specified by the lender. A representative of the lender conducts the sale. This is the time when the lender attempts to reclaim as much money as it can for its defaulted loan.
If there are no successful bidders, meaning no one offers a price higher than what the lender has stipulated as its minimum bid or the amount it will accept to satisfy the unpaid indebtedness, and the property is not sold to another party, the ownership of the property is involuntarily transferred to the lender. This procedure takes place by operation of law. This effects the third phase of the foreclosure process and the property is now real estate owned (REO), meaning title has passed from the original borrower/homeowner to the lender with the appropriate deed; it is now known as bank owned, and the foreclosure process is complete.
As difficult as this process is for all parties concerned, it is essential in order to protect parties who have provided funds for others to purchase real estate and to provide an orderly, legal procedure to exercise the rights inherent in the experience.
Home owners who find themselves in financial difficulty and face imminent risk of default on their mortgage, would do well to contact the lender promptly, immediately or sooner, open a conversation, explain the conditions in which they find themselves and appeal for an evaluation of alternatives to be current with the loan and whole with the lender. The loan modification or a work out of an alternative may be possible. This is when the idea of a Short Sale may be evaluated. But all this must be done before the lender exercises its right to sell the property to liquidate its loan through the process of foreclosure. That is why early contact with the lender by the homeowner/ borrower is so vital.
St. George REALTOR® Jim Coleman is Associate Broker and Partner/Owner of ERA Brokers Consolidated. He Specializes in Residential, Investment and Commercial Real Estate, holding National Designations of Accredited Buyers Representative (ABR), Certified Residential Specialist (CRS), Resort and Second Home Property Specialist (RSPS), Seniors Real Estate Specialist (SRES), Certified International Property Specialist (CIPS), GREEN Property Specialist, and Certified Short Sale and Foreclosure Resource Specialist (SFR). You can contact him by e-mail at Jim@JimColeman4Homes.com. Call: (435) 674-0600; or write: Jim Coleman, 201 East St. George Boulevard, St. George, Utah 84770. This and other columns are available at www.WinningTalk.com/articles.