How foreclosure works
By Marshall Brain
http://www.JewishWorldReview.com | (MCT) Foreclosure is one of those words that every homeowner dreads. But it is in the news all the time right now, as thousands of homes in the United States are being foreclosed on each day. What causes a foreclosure to happen? Can it be stopped? Is there anything you can do to prevent it?
Foreclosure is something that happens to a homeowner who has a mortgage. If you don't own a home, or if you have paid off your house, foreclosure is something you don't have to worry about. For people who have a mortgage, the foreclosure process starts when the homeowner misses a payment.
After missing a payment, the mortgage company will hit the homeowner with a late fee, and about 15 days later someone from the mortgage company will try to make contact. The mortgage company would rather not foreclose on a house - it is generally a long and expensive process. So the mortgage company will try talking to the homeowner to find out what is going on. If the homeowner makes the payment, then the foreclosure machine will stop. If not, the foreclosure machine shifts into second gear.
Let's assume that the homeowner completely ignores the mortgage company and does not make a payment. Two to four weeks later the mortgage company will send a letter telling the homeowner that he/she has breeched the mortgage contract. The homeowner will be given an opportunity to fix the problem, but if he/she doesn't, the foreclosure machine shifts into third gear.
What happens next depends on the state, but probably looks something like this: After missing the third payment or so, the mortgage company starts the legal process. The mortgage company needs to file a notice of default, usually with the county, to let everyone know that foreclosure is starting. There may be a waiting period (again, to give the homeowner a chance to solve the problem), but then a sale date is set, and after an appropriate period of time (depending on the state) the house is sold. The homeowner is usually evicted about that time, and the new owner takes over.
The money from the sale first goes to pay the mortgage company. Then, if there is any left, it pays any lien holders. Any left after that goes to the original homeowner.
Obviously no one wants to go through a foreclosure. The easiest way to prevent it is to make all of your payments on time. But if something goes wrong and you fall on hard times, HUD offers advice on what to do. Your best first step is to contact the mortgage company and let them know you have a problem. They may have ways they can help. Next, you want to do whatever you can to get back on schedule, because each payment you miss simply digs the hole deeper. HUD recommends looking for assets - like retirement accounts or life insurance policies, or anything else of value like a car or jewelry - in order to raise cash.
HUD also offers counseling services in most cities, and your state or county may do the same.
It is also important to avoid scam artists during the foreclosure process. For some reason there seem to be a lot of people preying on people in foreclosure. For example, if someone calls offering to negotiate with the mortgage company on your behalf, you want to take a pass because: a) these companies often charge thousands of dollars, and b) you can probably get this service for free from HUD. You also want to avoid companies that promise to eliminate your foreclosure problems immediately. There's a good chance that they, instead of the bank, will end up taking your home.
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