Foreclosure refers to a process in which a lending company can take back ownership, or repossess, a home because the owners have missed payments on their mortgage.



The goal of foreclosure by a lending company is to obtain any money that is still owed. There are three stages of foreclosure.

Not necessarily all homes going into foreclosure will have to go through all three stages, depending on whether or not the homeowner can pay the amount due.

The first step in foreclosure is pre-foreclosure. This is when the lending company has waited for a certain number of missed payments.

The number of missed payments will depend on the lending company's policies but is generally anywhere from two to four missed payments. Once there have been enough missed payments, the company will send a default notice to the homeowner.

This notice, unfortunately, becomes public record. After receiving the notice, homeowners will then be given a certain amount of time, dictated by the company, to notify the lender that they have received the notice and perhaps come up with an alternative, such as a payment arrangement.

During this period of time, the homeowner may also collect the amount of money that is due and pay it. This usually needs to be done by selling the home.

The next step is foreclosure. When a home enters the foreclosure stage, the homeowners may still be living in the home or they may have been evicted.

It depends on the area's policies for homes in foreclosure. In either case, the lender will place the home at an auction to be sold.

The money that is made from the sale will first be used to pay back the lender and cover any other costs that the home and the owners may have incurred, such as taxes, service charges, or other costs.

If there is money left over after everything has been paid off, the remaining funds will be given to the former homeowner. Unfortunately, there is usually not enough money to cover all the costs in which case, the former homeowner is generally responsible for them.

The next phase of foreclosure is called "Real Estate Owned."

A home that has gone to foreclosure will reach this phase if the home has not sold at auction. In this case, the home will become the property of the lending company. They will try to sell it using a real estate agent, rather than selling it on their own.