Learn the Stages of the Foreclosure Process

When a property is bought by new owners and they finance a mortgage, the bank that they borrow the money from gets an ownership interest in the house that is put up as collateral. The document showing this interest is the mortgage or deed of trust, which describes the terms of the mortgage, the lien on the home, and the amount originally borrowed. If the property owners default on payments, the lender will be able to take possession of the property and evict the borrowers through the foreclosure process.

The legal process of foreclosure, though, does not automatically allow the mortgage holder to take over the home and evict the owners very quickly. There are several stages in the legal action of taking a house through foreclosure, and nearly all of the details of these stages are defined by the individual state's foreclosure laws. Typically, the laws will let the bank regain the property since it is collateral for a now-delinquent mortgage loan, but the lender must follow specific steps.

The three most prominent steps of foreclosure are the pre-foreclosure stage, the lawsuit stage, and the auction of the property. When homeowners first begin to fall delinquent on their loan and are unable to get back on top within a couple of months, the bank will put the mortgage into pre-foreclosure. In this stage of the process, the bank will most often be calling to collect or work out a plan, but the borrowers may not have recovered from their hardship yet. Unpaid interest and late charges are being added to the loan, though, which will make it more expensive to stop foreclosure later on.

In the second stage of taking a home back, the mortgage company will file the foreclosure lawsuit or the Notice of Default with the county recorder or clerk. In general, the owners have a set period of time to answer the complaint and a hearing will be set with the county courthouse. In most cases, lenders are able to get default judgments against borrowers who do not make an appearance to fight the foreclosure or file an answer. This makes it very simple for banks to proceed through this step of the process, although they may have acted improperly or even be engaging in predatory lending or mortgage fraud. But if the borrowers do not stand up for their foreclosure rights at this point, the lender can obtain an easy victory in the courts.

The most common final step in the foreclosure process is when a property is auctioned by the local court system at a sheriff sale. Once the auction has gone through, the new owner will get a sheriff's deed or other temporary proof of ownership, which will allow them to take possession of the house once the auction has been confirmed. It is most often the mortgage company that purchases the house at auction, and once the confirmation of the sheriff sale, the eviction process proceeds. In most states, once the house is auctioned, the point of no return has been achieved and the eviction of the former borrowers is a foregone conclusion.

These are the three most common steps in the foreclosure process in most states. Some states, though, do not stop the process after the public auction, and will give the owners more time to save the home during a legal redemption period. During this period, the lender can not begin removing the former owners living there, and the borrowers can use this time to find a solution to pay off the auction amount, sell the property, or even save up money to move on with their lives after they leave the property. Not all states grant such a redemption period, however, so it is vital that borrowers look up their state foreclosure laws before planning their next move after a sheriff sale has gone though.

In order to create any reasonable plan to stop foreclosure, borrowers should have an understanding of how the process will proceed in their state and the time lines for each stage of foreclosure. The legal actions the lender takes must be in accordance with the statutes and regulations of the state and the county rules. It should be noted that lenders and their attorneys often violate these rules in many cases, but it is up to the owners to defend their homes against such violations. Understanding the process will not guarantee they are able to save their properties, but it can make the difference between making a plan of action and being caught totally ignorant of important aspects of how foreclosure works.