Having your own home is like having a little piece of heaven on Earth because it’s where you get to relax and do your own thing when you’re not busy. However, owning one is a long process because most people tend to apply for loans that should be repaid. If a homeowner fails this obligation, the foreclosure process will take effect.
In this article, we’ll discuss everything to know about foreclosures. Read on below to get started.
What Is a Foreclosure?
A foreclosure is a legal process that a lender may use to recover any money where the borrower has failed to pay a loan. It’s best to call it a type of “bankruptcy” because it takes back the property or any type of property.
The result of a foreclosure is the bank gets to sell the house to other people. After the sale, the lender is paid by the purchaser directly. The rest of the proceeds are paid to anyone else in line, such as other borrowers.
If the bank is the one foreclosing on your property, then it’s called a “deficiency judgment.” When the lender is foreclosing on the property, the lender gets the proceeds from the sale. This doesn’t mean that the borrower has to pay for the entire mortgage amount, but just the deficiency.
The Foreclosure Process
If a borrower fails to pay for a loan, the lender will market and sell the property. The lender must:
- Send at least one notice to the borrower asking them to cure the default.
- Wait for the number of days in state law the borrower has to cure the default.
- File a lawsuit in court to begin the process.
- Win the lawsuit to be able to start the foreclosure process.
If the borrower doesn’t pay back the loan and the default goes on for more than a year, the lender will get a judgment in court. The judgment will be made against the borrower and order the foreclosure to occur. Additionally, if the house is worth less than the mortgage, the lender may sue to collect the difference. The lender will notify the borrower that they can pay the difference or lose their house.
The lender will send a “demand letter” to notify the borrower that they can either pay the difference or lose the property. When the borrower doesn’t pay, the lender can move forward with the foreclosure.
It’s worth noting that no one but a judge is responsible for ordering the foreclosure. The lender will let the court know if they want the funds paid directly to the lender or a third party.
How Long Does It Take?
A foreclosure can take as long as two years. The process can end in several ways. These include:
- The lender wins in court.
- The borrower wins in court.
- The borrower pays off the loan or renegotiates a deal with the lender.
- The borrower sells the house.
- The borrower defaults on the loan and loses the property.
Types of Foreclosures
There are four types of foreclosures. These are:
Judicial Foreclosure
Judicial foreclosures can be ordered only by a court. The borrower has to fail to pay their loan to start the foreclosure process. The lender will go to court and win the right to foreclose. This allows the foreclosing party to take back the property and sell it to repay the loan.
Non-Judicial Foreclosure
Non-judicial foreclosures are done without a court order. Instead, they are done by the bank directly. They are simply used when the borrower pays on time, but they stop paying. Non-Judicial Foreclosures are also done by the bank directly by the borrower. The lender will file the foreclosure affidavit, recorded with the county recorder.
Power of Sale
A power of sale is an action done by the lender. The lender files the foreclosure statement, recorded with the county recorder. In many cases, the lender uses the power of sale to sell the property at a public auction. In some areas, the public auction is to pay off the loan, while it can also be used to sell the property.
Strict Foreclosure
The lender does a strict foreclosure when the borrower fails to pay on their loan, and the property is not being sold at a public auction. The lender can hire a licensed attorney to file the foreclosure documents in court. If the court grants a final judgment, then the bank can foreclose.
Conclusion
If you’re a homeowner, make sure to understand the foreclosure process. It’s best to stay informed and make sure that you can make your payments on time, or else you might lose your home.
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