When an individual fails to make the mortgage payments on a house or other real estate property, the bank may initiate foreclosure proceedings. A mortgage is a legally binding contract between the bank and the property owner that stipulates the terms the owner must follow in order to keep the property. When the owner does not make payments on the mortgage, he may lose his right to the property. A foreclosure is the legal means by which the bank takes ownership of the property.
Purpose
The purpose of a loan foreclosure is to follow the letter of the law when repossessing a client's home or property. Banks usually make an effort to work with a homeowner in order to allow him to keep the property, but in some cases, the owner can no longer meet his financial obligations and the bank must take the home and resell it to recoup the bank's investment in the home.
Preliminary Action
Only loans in which the property owner defaults on the payments qualify for foreclosure. After the owner misses one payment, the bank will send a letter reminding him that his payment is late, followed by additional letters over the new few weeks stating the same thing. If the owner does not respond, the bank may send a letter demanding the entire past-due amount and advising the owner that the bank will take legal action if the owner does not pay.
Legal Action
A lawyer, hired by the bank, will send the homeowner a Letter of Demand, informing the owner that the bank is preparing to take legal steps to obtain the property. The lawyer will then schedule a court date for a judge to hear the case and make a determination. If the judge rules that the owner must pay the past due amount or lose the home, the owner will have a set time in which to respond, after which the attorney will schedule a foreclosure sale and the owner may face eviction from the home.
Options
The owner may avoid a foreclosure by requesting a loan modification from the bank before he falls behind on his payments. In addition, in some states, the owner may have a redemption period after the sale, during which he can get his property back if he can come up with the money.
Effects
A foreclosure is emotionally draining for most homeowners. In addition to losing their home, they may also face a lawsuit by the bank if their home does not sell for the amount of money they still owe. Their credit rating will also suffer.
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