Related Terms: Foreclosed Property, Default, Grace Period, Late Payments
A foreclosure is when a borrowers gives up all rights to his/her home as a result of not making monthly mortgage payments. The foreclosed property (which acts as a collateral for the loan) is then seized and sold by the lender to recover the loss.
There are a number of reasons a homebuyer might default on the terms of their home loan. They could have lost their job, or have fallen into a lot of debt. Regardless of the reason, when a borrower can’t or won’t continue making principal and interest payments on time, there is a risk of foreclosure. Lenders must file a public notice of default (NOD) with the county if payments on a mortgage are delinquent. Additionally, most states have laws under which lenders are obligated to notify borrowers that they are in danger of losing their homes and being evicted. If the outstanding payments are not made during a given grace period, the property is auctioned by the county so the lending institutions can be repaid for the money lost in the loan.
If you are a borrower having trouble making monthly payments, it is important that you speak with your loan officer to see about alternative payment options in order to keep your home. Since the foreclosure process comes with many costs for lending institutions, it is in their best interest to avoid it. If you are a potential homebuyer thinking about purchasing a foreclosed home at auction, there are a lot of factors you need to consider. You may not be allowed to inspect the property before buying, which is always a risk. There may even be a liens against the home, which becomes your problem.
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