The Foreclosure Timeline
There are many homeowners today that are facing a financial hardship due to a job loss, illness in the family or other event. One consequence of this financial hardship could be a foreclosure proceeding on their family home.
A foreclosure is the first step in the process a lender must follow to acquire the property it holds as security on the note which is in default, sell the property and recover its capital.
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As a homeowner you will need to be familiar with the 6 steps of a foreclosure.
Step 1: Default of payments
A default of payment is when a borrower has missed at least one scheduled mortgage payment. Most lenders will allow a default of payment for 3 to 4 months before beginning the legal process to move the house through the foreclosure process. During this time the lender will make repeated calls to the borrower to advise them of their options and attempt to get the borrower back on track.
Step 2: Legal action begins
At a particular point in time, usually between 90 to 120 days after the loan goes into default the lender will reclassify the loan and transfer it to the Foreclosure or Loss Mitigation Departments. They will also at this time, have their attorney file a Notice of Election and Demand with the Public Trustee in the County in which the property is located. The legal process to recover the property has begun at this point. Colorado statute provides for a period of 120 days from that point moving forward for the borrower to initiate a work out with the bank to avoid having the foreclosure move forward to the auction. This workout can be a loan modification, deed in lieu, or in most cases a short sale.
Step 3: Public Trustee Auction
If no resolution to the deficiency is negotiated by the borrower before the sale date the Public Trustee will “sell” the property to the highest bidder. The lender will establish an opening bid and any subsequent lien holder, private individual or company can place a bid on the property at that time. Once the highest bid has been determined and the redemption periods have been fulfilled the Public Trustee will issue a Public Trustee’s Deed to the purchaser. At that time the purchaser holds title to the property and the original homeowner will need to vacate the property or be evicted.
Step 4: Real Estate owned by the Bank
If the lender is the highest bidder on the property at the Public Trustee sale the property is then deeded to the bank. This is commonly called an (REO) property or Real Estate Owned by the Bank. The lender will then list and market the property for sale with its own group of local Realtors. As time goes by, the lender will continue to reduce the asking price for the property until it sells in the local marketplace. If the property does not sell in a designated time or for a designated price the lender will then typically send the property to a HUD auction.
Step 5: Eviction
Typically upon the sale of the property at the auction the lender will begin the eviction process if the borrower is still occupying the property at that time. In some cases the borrower may negotiate a lease agreement with the REO management co to continue living in the property to maintain its upkeep and security. This is an exception and is typically only available on higher end properties and properties which have been properly maintained to provide for a better presentation for sale.
I am hopeful that this explanation of the foreclosure timeline can be used as a tool to help you understand just one of the processes and resolutions you may have with your lender if the circumstances arise and you are facing a default on your mortgage.
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