Once a foreclosure is deemed necessary, there are a number of steps that happen in a very specific order. These steps and the timing involved will vary from one state to another, based on the local law for foreclosures by state. In addition, banks may enforce their loan terms and conditions as they best see fit.
Depending on the unique situation each homeowner and each location presents for the bank, the foreclosure process may be either accelerated or delayed. While there is no universal foreclosure time line enforced, the process most often involves six steps. This overview gives a summary of the steps and timing that apply in general.
Step 1: Missed payment #1
If a homeowner has not submitted their payment by their usual due date deadline, the lender will call or mail a notice requesting payment immediately. This may be 30-days after the usual payment due date. At this early point, public records may post the property on local pre foreclosure lists.
Step 2: Missed payment #2
If the homeowner did not make up their first missed payment, and then missed a second payment, the lender will become more active and make several more attempts to contact the homeowner demanding payments immediately. The homeowner is now over 60-days past due and behind on two payments, plus any fines, in total. The home remains listed with other available pre foreclosures.
Step 3: Missed payment #3
90-days since first missing receipt of a payment, the lender usually sends a formal notice of default to the homeowner. In certain states, this is known by the legal term lis pendens. At this point, the lender will provide the total amount due to bring the mortgage back to current status, and demand payment be paid in full within the next 30-days. The home is now entering the most critical part of the foreclosure process.
Step 4: Missed payment #4
Typically this is the final straw for the lender. Once the time limit provided in the notice of default has passed, and the homeowner has not made payment or arrangements to bring their account current, then the lender takes legal action to end the pre-foreclosure stage and repossess the home. Home loans are callable or can be accelerated at this point to force the homeowner to pay the full amount due. The original mortgage terms are canceled. The home involved has now officially joined the list of foreclosed homes.
Step 5: Real estate foreclosure auction
The property is now subject for immediate sale through an auction. An auction date is set by the lender in conjunction with a local sheriff or public trustee. Foreclosure auctions may also be called sheriff’s sales. Anyone can submit a bid on the property on the date of the auction. The auction winner becomes the new owner, pending some final confirmations and the possible redemption period.
Step 6: Redemption rights
In some cases, the original homeowner can still retain the home after the auction. A redemption period may be available to allow this to happen. The redemption period would give the homeowner one last deadline and a chance to pay all the outstanding payments, fines and fees and redeem the property once again. While it is possible for a home redemption to take the property rights away from the auction winner, this is unlikely to occur at the end of the foreclosure process.
It is not unusual for the winner of the real estate foreclosure auction to be the lender or guarantor of the original mortgage. When the mortgage lender is a bank and wins the auction, the home becomes physical property of the bank. These foreclosed homes are called REO bank foreclosures or REO properties. REO stands for Real Estate Owned, referring to bank owned property.
In situations where a government entity guaranteed the original mortgage, the home may become one of the government repossessed homes. The US Department of Housing and Urban Development, or HUD, is often involved in government repossessions. Homes taken back by them are known as HUD foreclosers. Special programs sponsored by the government may be available for buyers of HUD homes. This makes these foreclosures especially attractive.
Either way, when these repossessed homes finish the auction process and redemption period, and no new public buyer participates completes the purchase, an REO foreclosure or HUD foreclosure can be made available for re-sale and join our master database of listings of repossessed homes.Foreclosure processForeclosure procedures