How The Foreclosure Process Works

I don't know about the rest of the world, but there have been times in my life when I have felt as if I was one paycheck away from serious financial risk. What a shame that Superman doesn't come to the rescue for problems like this one. One of my greatest fears has been losing a home due to the fact that I lost my job or had an injured child (or injured myself) that required me not to work for a long period of time which exceeded my savings, or any of about a thousand reasons. One thing to always remember is that bad things can sometimes happen to good people. Good people have their lives ruined through circumstances that are entirely and completely beyond their control.

With a foreclosure, there actually isn't a bad guy.  There is no mad banker waiting greedily in the wings to take your home and throw your family out on the street.  The fact is many of these people have a great deal of compassion and come across as harsh for the reason that the decision to foreclose usually isn't up to them.  In addition, we did sign the contract to agree with the foreclosure proceedings when we decided to purchase a home.  For most people, a home signifies the single largest investment in their lives.  The process of foreclosure could be scary if you are armed with knowledge; it is absolutely horrifying if you are uninformed during the foreclosure procedure. 

Here is how the foreclosure process works.  It is better if you understand it so that you will be prepared. 

1) First of all, a home does not actually go into foreclosure until you've become 3 months behind on your mortgage payments.  For sure the goal is to never get behind at all, but unfortunately things happen from time to time and certain things are beyond our control.  This means you don't have to be in continuous worry that if you are a few days late on your mortgage payment for a couple of months that the sky will fall.  This is not likely to be the case except if you are seriously behind.  Try to be proactive and don't allow yourself to get that far behind, or begin working with the bank beforehand if you know it for sure unavoidable. 

2) When you are 3 months behind on mortgage, you will either go into what is called judicial foreclosure or non judicial foreclosure.  In a judicial foreclosure, a lawsuit is issued to the homeowner who can choose whether or not to respond.  If the owner doesn't respond, the home is put on sale and will be auctioned off to the highest bidder unless the bid does not exceed the total amount owed on the home.  In a non-judicial foreclosure the lending institution would issue a statement of default and notify the owner of its intent to sell the home.  At this time, the home owner can possibly work to arrange an agreement and payment plan that is acceptable to the financial institution, or file a chapter 13 bankruptcy in order to stop the foreclosure.  If this doesn't happen then the property will be sold. 

3) Here is the tricky part.  If the sale of the home doesn't result in an amount of money that is at least equal to the amount owed on the home, the original homeowner is responsible for the dissimilarity.  Failure to pay the dissimilarity can be as harmful to your credit as the foreclosure itself. 

The process of foreclosure is not fun; it isn't meant to be.  Don't overextend yourself credit wise.  When buying a house, try to make sure that it is a house you know you can afford and live below your means.