The word “foreclosure” sounds scary for most homeowners as it is synonymous of losing a home. Foreclosure is a legal action taken by the lender if the borrower has stopped paying back his mortgage, simply because he has put the home as collateral when the mortgage loan was applied in the first place.

What happens when a homeowner defaults on mortgage payments?

Of course lenders will not take the home right away. If a homeowner stops paying in 2-3 months, a demand letter or notice is usually be sent by the lender. If the homeowner does not pay his dues accordingly or has not taken appropriate action, the lender shall push through with the foreclosure and sue the homeowner at the same time.  

The house is facing foreclosure, what now?

If you are having a short-term financial struggle such as layoff or business bankruptcy, it is imperative to talk to the lender and negotiate for smaller payments, then and roll over the remaining difference to the total mortgage balance. Most lenders would take this option rather than spending high on foreclosure proceedings in court.

If the homeowner can prove that he will work on improving his financial status, the law and other lending institutions will try to help him out as well. All he needs to do is to ask professionals for more options and create a financial game plan. This game plan will convince lenders to be more considerate and will let him keep the home under a special agreement for the time being.

One common solution for foreclosure is refinancing. If a homeowner has a sizable equity of his home, then he can try and apply for refinance, save his home and improve his credit standing. Other options would be liquidating assets: bonds, stocks, savings and sale proceeds of other properties the homeowner has.

What if foreclosure is imminent, what happens next?

There are times that a homeowner’s financial ordeal will take a long time and he can no longer save his home. The lender will then have to go to the court to file a “petition for foreclosure”. This helps them get back the money that was borrowed from them. So it is also highly possible for the homeowner to lose both the home and his equity he had built around it.   

Once the homeowner receives the petition, he must then send a response to the petition within 21 days, filed at the same address of the court as shown on the petition. The response should also come along with supporting affidavits, with 2 copies sent to the lender. With this done, no one can push through with the foreclosure without notifying the homeowner. If no response is made, the lender and the court will push through of the proceeding without the consent of the homeowner, thus making him vulnerable. After the response has been filed, the homeowner will then receive a Notice of Hearing which will let him know what the courts has decided regarding the petition.

Hearing and redemption period

The court can give the homeowner a chance to redeem his home by paying for the mortgage in full, plus interests, other costs and taxes. The redemption period can be as long as 6 months, but lenders might petition for a shorter period. The court can also order for the sale of the home which you can do by the homeowner himself or with a real estate agent. He can use the opportunity of the hearing sessions to let the court know of the actions he has done to pay the lender, as well as to request for an extension to redeem the home, if he needs more time.

Final order of foreclosure and order absolute

When the redemption period ends with the home remains unredeemed, the court will then issue to a final order of foreclosure. The court will then have to check if there are other individuals or companies taking charge of the home aside from the lender, as they may have rights for the sale of the home. In this case, the homeowner can petition to take charge of the sale as part of the property stakeholders.  If the court grants the right to sell to the lender or another party, it means that they are the only ones authorized to conduct the sale and the homeowner does not partake to the sale transactions.

When the lender petitions for order absolute and the court grants it, then the homeowner will have to yield and leave the home. If by any chance, the homeowner finds funds to pay the lender along with other creditors tied with the home, he can therefore ask the court for a temporary relief and return the home to him.  But if not, the home becomes the lender’s property, including the title and has the power to sell it.  If the home does not produce enough sale returns to cover up for the previous mortgage deficits, the previous homeowner does not need to pay for it.

Just bear in mind that as long as there is a mortgage balance, the lender still takes some ownership of the home. It is a binding contract you signed and have the obligation to fulfill. When you receive a petition for foreclosure, make sure to get legal advice right away. Knowing how to face this problem objectively, the emotional burden and inconveniences of losing a home can be alleviated.

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