Foreclosure: What Is It?
What does it mean?
Foreclosure is the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments. In simpler terms, it's what happens when a homeowner fails to consistently pay their mortgage.
What happens in a foreclosure?
While there is a variation from state to state, there are typically four phases of the foreclosure process.
- Missed Payments
It all starts when the homeowner fails to make timely mortgage payments. Usually, it's because they can't make the payments due to hardships, such as recent unemployment. Typically, mortgage payments are due at the beginning of each month but many lenders will offer a grace period until the 15th. When the first payment is missed, you will receive a notice from the lender that just makes you aware that the payment is late. However, when the payment is late for a second month the lender will send a follow-up notice known as a "Demand Letter." Some lenders may still be willing to make arrangements for the borrower to catch up on payments despite having two missed payments.
- Notice of Default
A notice of default (NOD) is sent out after 90 days of the missed payments. At this point when the NOD has been sent out by the lender, the loan is then handed over to the lender's foreclosure department. Once the loan is in the hands of the foreclosure department, the borrower will be notified with a "Notice of Default and Intention to Sell." If you are notified with the notice of intention to sell, this likely means that this process of foreclosure is non-judicial.
- Notice of Foreclosure, Sale
As previously mentioned, there is a non-judicial foreclosure process that is the most commonly used in the state of Arkansas. This just means that there will not be a trial involved with the process. Once the last notice goes out to the borrower, the lender must publish a notice in the local newspaper indicating that the property will be available for public auction. This public notice will include all of the owners' names, the legal description of the property, the address, and the time and place the auction will occur.
Often the borrower can stay in the home until it has been sold. Once it is sold, an eviction notice will be sent out demanding that any persons vacate the premise immediately.
Throughout the foreclosure process, many lenders will attempt to make arrangements for the borrower to get caught up on the loan and avoid foreclosure. If there is a chance that you can catch up on payments, for instance, you just started a new job following a period of unemployment, it is worth speaking with your lender. Having to foreclose on a property will cause the borrower's credit scores to fall and will remain on their credit report for up to seven years.