*****Disclaimer: This is not legal advice and is for educational purposes only. This does not create an attorney-client privilege. *****
Rodriguez Law Group, Inc. March 25, 2022
Foreclosure is a process that begins because an individual or entity fails to make mortgage payments on their real estate property. Generally speaking, most people do not, nor or even able to, pay off their cost of buying property in full. In the process of buying a home, people will put a down payment on the property and use a lending company to front the rest of the value. At that point, the buyer is then in debt to the lender and will continue to make payments on their mortgage to that lending institution. If for whatever reason you stop being able to make those mortgage payments, foreclosure can ensue.
So what exactly happens over the course of foreclosure? Well the main thing to be aware of is that if you stop making payments, the lending company can legally repossess your home. When you use one of these lenders, you are agreeing to make the payments and if not, your house is put down as collateral.
Collateral is property that is pledged by a borrower in order to protect the interest of the lender. These institutions do not lend you the money to buy your property out of the goodness of their hearts; they are making money on the interest accrued as you pay off the loan. If you stop being able to pay, they are not going to just take on that loss. Instead, they are going to collect the asset themselves to recoup the loss in mortgage payments. There is actually a vested interest in the bank or institution doing this because not only would they get the value already paid by you in mortgage installments, but they would also get the whole asset in its entirety and all its value for themselves ultimately. Typically the lender will sell the home once the repossess and get the full value back.
When do you actually risk foreclosure beginning? The good news is that it is not just if you miss one payment, the lender will immediately swoop up your home and resell it to recoup. No, the process does not even begin to initiate until you are 120 days delinquent on payments, though there are some exceptions to this rule. For example, due to Covid there has been a forbearance period enacted by the CAREs act that essentially gives a grace period to borrowers on making their payments. Lenders are also required to make some ‘good-faith’ attempts to contact the borrower to let them know that they are late on their payments and to present alternatives to beginning the foreclosure process.
Stay tuned for our next blog on the steps of the foreclosure process.