When someone purchases a home, it is one of their happiest days. Falling in tough economic times and losing that home is considered one of the lowest points.
Foreclosure happens when the homeowner is unable to maintain their monthly mortgage payment. There are programs to help homeowners save their homes, but it isn’t beneficial to everyone. Too often, the homeowner still ends up having to forfeit the home.
When this happens, it’s important to know the different types of foreclosure. Keep reading to learn what happens before, during, and after foreclosure.
There Are Three Types of Foreclosure
When a property goes into foreclosure, there are two main types a homeowner will experience. One is a judicial foreclosure, and the other is a non-judicial foreclosure offered in more than half the states in the U.S. The third is known as a strict foreclosure.
The default terms are located within the mortgage documents and state when and how the foreclosure process will play out. Technically, the loan is in default after the first missed payment. Often, the foreclosure process begins 90 days later.
During the pre-foreclosure process, the homeowner has several options. Get caught up on their mortgage payments, enter into forbearance, or make payment arrangements. You can also consider selling your house fast to avoid having a foreclosure on your credit report.
You may be wondering can you sell foreclosed homes. The answer is no. Once your home is legally foreclosed, you must vacate the premises immediately unless the lender allows you to remain in the home.
Now let’s look at the foreclosure types.
1. Judicial Foreclosure
Judicial foreclosure is the most common foreclosure process. Once the borrower misses their third payment, the foreclosure journey begins. According to state regulations, you’ll receive a letter from the lender giving you one more chance to bring the mortgage current.
If you fail to bring the mortgage current, the property is foreclosed and is auctioned off. If there isn’t a buyer, the lender can place the home on the market.
2. Non-Judicial: Power of Sale Foreclosure
The power of sale clause in mortgage documents means the lender can auction your home without seeking permission from the courts. Forgoing the court speeds up the foreclosure process.
Check if you live in a non-judicial state and learn if you can sue the lender to stop or delay the auction.
3. Strict Foreclosure
Strict foreclosure is in the states of Connecticut and Vermont. It is common in cases where the debt is more than the home’s current value. Failure to bring the loan current in a specified time automatically reverts the property to the lender.
Avoiding one of these types of foreclosure isn’t always within your control. At the first sign of financial problems, seek financial counseling. If you can’t make a payment, contact the mortgage provider to discuss options.
Remember, you can always consider selling your home, which will make it easier to buy another home in the future.
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