What Homeowners Should Know About the Foreclosure Process
Few people buy a home expecting to go through foreclosure before they pay off the loan. However, this event happens to people on occasion, sometimes despite their best efforts to avoid it. Foreclosure is a legal process that lenders have to abide by order to try to get borrowers current on the loan, then take action to claim ownership of the property. Although many aspects of foreclosure are state-specific, there are certain guidelines that all lenders must follow. This guide identifies what Hudson County homeowners can expect as they go through this process.
What Is Foreclosure?
Foreclosure is the loss of real estate property due to a long period of default. Homeowners can miss one or more payments on a mortgage without triggering the foreclosure process. In fact, lenders often delay starting foreclosure in an effort to persuade the borrowers to resume making timely payments. Although lenders have some flexibility, they must follow the steps as outlined in federal and state law to carry out a foreclosure. As a general rule, homeowners who go through a foreclosure have the event reported on their credit for seven years.
What Are the Common Steps of a Foreclosure?
When lenders decide to start the foreclosure process, they have to follow steps that come in a specific timeline. Homeowners should keep in mind that lenders are not required to foreclose on a property. This means they can take longer to issue certain notices if they are in the process of negotiating a new payment arrangement with the borrower. The steps include:
- Notice of Default
- Notice of Sale
- Trustee Sale
Typically, lenders can send a Notice of Default once the mortgage is at least 90 days behind. This notice is different than a simple late payment notification, because it shows that the foreclosure process has begun. Three months after the Notice of Default, if the borrower does not get current on the loan, the lender can send a Notice of Sale. This tells the homeowner that the property will be sold. A trustee sale is the final step of the process, and usually happens several weeks after the last notice. At this point, the property is sold and the homeowner must make arrangements to move.
Is There a Difference Between Foreclosure and Short Sale?
Foreclosures and short sales can have significant effects on homeowners, but they operate very differently. With a foreclosure, homeowners go through the process with their bank. Eventually, the bank takes ownership and sells the property. Short sales only apply to properties that are worth less than the total of the mortgage. When doing a short sale, homeowners retain some control of the process, although the bank plays a heavy role. For example, homeowners may be able to hire a real estate agent to help them sell the home, but the bank has to agree on any offers. People often end up with some liability or damage to their credit after a short sale, but it is usually not as much as a foreclosure.
Can Homeowners Do Anything to Stop the Foreclosure Process?
The ability of homeowners to stop the foreclosure during the process depends on how much they can pay and where they are at in the proceedings. The full process often does not begin until the borrower is at least three months behind in the mortgage. As a general rule, homeowners need to pay all past-due amounts to stop the process. However, lenders tend to be more willing to work with someone who is only one or two payments behind, because there is a higher likelihood that the person can get current on the loan. This is why homeowners who are struggling to make the mortgage payment should try to talk to their lender as soon as they start having problems. They may be able to negotiate a new payment plan or refinance the mortgage to a payment they can handle.
What Are Homeowners' Responsibilities Throughout the Process?
Homeowners may not have to do much throughout the foreclosure process, until the sale is complete and they have to vacate the property. However, people should pay close attention to the process and keep in communication with their lender, especially if they are trying to prevent the foreclosure. Lenders may simultaneously work with a borrower to get current and proceed with the foreclosure, in case those efforts do not translate into payments.
Homeowners should also consider tax and other monetary liability they could face after the sale. If the home sells for more than the total for the mortgage, people may need to consider capital gains taxes. They might also have to pay taxes on the cancellation of debt income. Rules are often based on state law. For example, some states require homeowners to pay the lender the difference between the value of the mortgage and the final sale price.
Foreclosure can be a difficult time for homeowners, but knowing more about the process can help. By understanding their role and responsibilities throughout the experience, people can make an educated decision about what they should do.