Understanding the three basic stages of foreclosure

by | Feb 11, 2018 | Real Estate

Foreclosure is never an easy process for a homeowner. Few people know what to expect during the process: After all, no one expects that their dream of home ownership will end in foreclosure. Most people hope that they will live in their home for many years, if not the rest of their lives.

For many American families, though, foreclosure is an all-too-painful reality. Although it can be a daunting topic, the foreclosure process can run much more smoothly for homeowners when they know more about it. Here, we’ll discuss the three basic stages of foreclosure.


1. Pre-foreclosure

When a property has late mortgage payments but has not yet been repossessed by the bank, it is said to be in pre-foreclosure. Once a homeowner is over 90 days late on their mortgage, the bank will typically initiate the foreclosure process. You will receive a public notice from your lenders officially stating that you have defaulted on your mortgage. Pre-foreclosure is an important stage because there is still a chance to keep your house: It may be possible to work out an arrangement with your lender, sell the home or catch up on back payments.

2. Foreclosure and auction

Unfortunately, if none of these options work, the bank will proceed to foreclosure. The house will be repossessed by the lender and become a Real Estate Owned, or REO, property. Depending on your individual situation, you may be evicted from your former home. In this case, you will need to find new living arrangements as soon as possible. Your lender will then announce a date for the foreclosure auction, where the house will be sold to the highest bidder.

3. Post-foreclosure

Once the house is sold at auction, the bank will use the money to cover the outstanding balance on your mortgage, plus any other fees pertaining to the sale. If there is any money left over, it will typically go to the former homeowner. Foreclosures can remain on your credit report for up to seven years; until then, you may find it difficult to be approved for loans. Still, with hard work and the help of an attorney, many people are able to rebuild their credit and purchase homes again.