Foreclosure is a process in which a lender takes ownership of a property if the borrower of a mortgage fails to keep up with their monthly mortgage payments.
Foreclosure is usually a last resort for banks after other alternatives our exhausted.
Working with the Home Owner
If a home owner misses a payment, the bank starts the process of working with the home buyer to get everything in order. At first this may be a simple reminder – a phone call or a letter. This is phase is sometimes refereed to as collections. The home buyer may have just forgotten to pay their mortgage payment. In this situation, they can just make the payment and pay any late fees and be on their way. Usually, if your less than a month behind, the bank won’t even report the late payment to the credit bureaus.
If collections fails, the bank will try and work with the home owner to modify they loan or spread the missed payment out over a few months. They work out a plan that gets the home buyer back on track and allows them to stay in the home.
If the bank is unable to work out a payment plan with the home owner, they may offer a short sale or a deed in lieu of foreclosure. Both of these solutions allow the home owner to transition out of the house without foreclosure, but requires cooperation on both sides.
Foreclosure as a Last Step
The bank will file for foreclosure if all of these attempts fail. This process allows the bank to take legal ownership of the property and they are able to sell the property to offset some of the losses they will incur on the property.
Foreclosure can happen for many reasons, but it is important you buy a home that your can afford. This will lower your risk of foreclosure. Bundle has some great tools that will help you budget for your home.
Read more on monthly mortgage mortgage payments here.
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