Foreclosure has been a buzz word since the housing market crashed in the early 2000s. But what exactly are foreclosures and how do they work? Think of a home foreclosure as a house getting repossessed. A house can go into foreclosure for multiple reasons but generally, it is due to either not paying the mortgage or a legal judgment against the home. This process can look different state by state but generally follows a similar formula. Let’s take a closer look at why foreclosures happen and what the foreclosure process is like.
Why Do Foreclosures Happen?
Foreclosures happen when a homeowner is not able to pay their mortgage payments. Foreclosure rates peaked during the housing market crash of the mid-2000s. When the economy started to decline there was a perfect storm of people losing their income coupled with rising interest rates. At that time lending guidelines were much less strict. Adjustable-rate mortgages were common. The change in the economy came with adjusted interest rates on their mortgages making their payments skyrocket. For some homeowners, the amount they owed on their home became higher than the value of their house. For many people, it was a combination of these factors. A lot of people were simply not financially ready to buy a home but were approved due to the looser lending guidelines.
These days lenders follow stricter guidelines in order to make sure that buyers can, in fact, afford their homes. Now, most foreclosures occur for personal reasons. Homeowners cite job loss and health crises as the top reasons for no longer being able to afford their mortgage.
The Foreclosure Process
The foreclosure process varies by state but they all generally follow similar procedures. The whole process can take from several months up to a year.
- Missed Payments – Usually, it takes about 3 missed payments to begin foreclosure procedures.
- Public Notice – After a certain amount of missed payments, and depending on the state, either a Notice of Default or lis pendens will be filled with the County Recorder’s Office by the lender. This serves as an official notification (besides the letters they will receive from the lender) to the borrower that their home will next go into pre-foreclosure.
- Pre-foreclosure – Pre-foreclosure acts as a grace period in which the homeowner may work out some type of different arrangements with the lender or pay the amount owed on the mortgage to avoid foreclosure procedures. This period usually lasts from 30-120 but in some cases, it may be longer.
- Auction – If the homeowner does not make arrangements or pay the amount owed, the lender will arrange for the home to be sold at a foreclosure auction. The lender now files a Notice of Trustee’s Sale with the County Recorder’s Office. Auctions can be held anywhere but commonly happen on the courthouse steps. The homeowner can still repay the amount owed and keep their home up to the moment of auction.
- Post-foreclosure – If the home is not purchased during the auction the lender will “repossess” the home and take ownership of it. At this point, the home becomes a bank-owned property or Real Estate Owned (REO).
Thankfully for homeowners, the foreclosure rate has declined since the early 2000s. These days foreclosures are harder to find than they once were. That is why we include homes from most of the categories above in our listings. We scour the country to find the widest array of homes in various stages of the foreclosure process. What type of foreclosure home are you most interested in?