What happens after foreclosure? Most of us know that foreclosure is the process through which a lender takes legal ownership of a home to recover the cost of an unpaid mortgage. It’s an ugly situation that no homeowner wants to find himself in, but that’s becoming more and more common as the nation’s housing crisis deepens. In fact, hundreds of thousands of foreclosures are filed by lenders each month, and that number is growing. Most people try to stop the loss of their home to the bank, either by working out a payment arrangement or selling the property. Very few really know what happens if the foreclosure goes through. For homeowners facing this prospect, this is very important information.
When a foreclosure runs to its conclusion, one of four things usually happens:
*The homeowner pays off the mortgage, usually through a refinance, but sometimes through cash. Once the mortgage note is paid off, the foreclosure becomes null and void. The homeowner can pay off the mortgage at any point during the proceedings, right up until the time the bank takes possession of the property.
*The homeowner sells the property for the full amount of what’s owed on the mortgage. Again, this pays off the loan and stops the bank from taking possession. The house can be sold by the homeowner at any point, right up until the foreclosure auction.
*The home is sold at a public auction. Depending on the state, this auction may be held on the courthouse steps, at the home, or elsewhere. The highest bidder gets the deed to the property, and is usually required to pay cash.
*The bank takes possession of the property. This usually happens when there are no bidders on the property at the auction, or no one bids high enough to satisfy the lender. Banks can also take possession of the property through a deed in lieu of foreclosure arrangement with the homeowner (the homeowner gives the deed to the lender on a voluntary basis). Once the bank owns the property, it becomes known as a REO (Real Estate Owned by lender), and the lender is responsible for its upkeep and maintenance. As can be imagined, lenders typically try to sell REO properties as soon as possible, as these are a great expense to them.
After the foreclosure has been completed, there may be a redemption period in which the homeowner can still reclaim the home. Not every state has a redemption period, so be sure to check your own state laws if you’re facing foreclosure. Redemption periods can last from a few days to a month or more, and you can not be evicted from your home during this time, even if the home has been sold at auction. If you’re able to come up with the money to pay off the mortgage during the redemption period, you get to keep ownership of your home. If your state has no redemption period, then you’ll likely have to leave the house as soon as the foreclosure sale is complete. It’s important to know what happens after foreclosure, so you can be sure your interests are protected and your full rights are exercised during the entire process.
This is the sixth installment in our foreclosure series. Be sure to check back for updates…