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Foreclosure Explained

Over the past few years, we haven’t seen many foreclosed homes in Dallas or Fort Worth. This is partially because the market has been so good but also partially because there have been a lot of Covid relief programs to help those who need it.

However, many of those programs have expired and the market seems to be turning a bit, so we may see an increase in foreclosed homes around here. Today, let’s take a deep dive into the world of foreclosed homes.

Contents:
What is foreclosure?
The two types of foreclosures
The foreclosure process
What happens afterwards?
How To Avoid Foreclosure
Conclusion

What Is foreclosure?

Foreclosure occurs when the home is seized by the lender. The process begins when the borrower, usually the homeowner, fails to make payments on their loan. Missing payments is known as “defaulting.” Because mortgage loans use houses as collateral, the lender has a legal right to repossess the house as a form of payment in the event of missed payments.

Of course, lenders can’t just attempt to foreclose a house as soon as the homeowner misses their first loan payment. It has to be a recurring issue over a set period of time. Usually, the loan has to be 120 days delinquent. There are some exceptions and some of these laws change from state to state, so definitely be sure to check your local laws.

the two types of foreclosures

There are generally two types of foreclosures: judicial and non-judicial. The difference is whether or not the lender involves the legal system. Judicial foreclosures are a valid process in every state, but some states will require them. Texas is not one of those states.

Judicial foreclosure occurs when the lender files a lawsuit with the judicial system. The borrower who has defaulted on their payments has a set period of time to respond and pay. If the borrower does not pay, the home can be foreclosed upon and sold by the lender.

Non-judicial foreclosures can occur if the mortgage has a power of sale clause or if the promissory note is tied to a deed of trust. If the mortgage has a power of sale clause, the lender can auction off the house without going to court after a warning and waiting period which allows the borrower to respond. In the case of a deed of trust, the lender can seize the property and sell it without a court order if the borrower defaults.

The foreclosure process

Foreclosure is not a very quick process at all. Generally, a foreclosure will follow this order of events: notice of default, eviction, and credit reporting.

As I mentioned earlier, the lender can’t just jump on their first opportunity to foreclose a house. They generally have to wait 3 months. During this time, they will attempt to make contact with the borrower and come to an arrangement. They will file first legal or a notice of default to officially let the borrower know they missed a payment. The borrower will have an opportunity to apply for loss mitigation, which is meant to help the borrower make up their missed payments or give them an opportunity to exit the house without being foreclosed upon.

If the home is foreclosed upon, the house will be seized by the lender and the borrower will be evicted. Essentially, they will be kicked out of the house so the lender can take ownership of it. Generally, the lender will give the borrower notice and a period of time to vacate the premises. Usually, this is around 3 to 30 days. If they don’t leave, they can be sued which can make it much harder for them to buy or rent in the future.

Of course, foreclosures will greatly damage the borrower’s credit score. Of course, how much it impacts the borrower’s credit score will depend on their credit history, but the foreclosure will remain on their history for 7 years from the date of the first missed payment.

What happens afterwards?

Whenever the lender gets the house back, they will try to sell it, and there are a couple of ways they can do this.

There is a website called hudhomestore.gov that shows homes that were foreclosed upon by the government due to government-backed loans. If you want to buy a foreclosed home, this is a great resource.

A lot of times, judicially foreclosed homes will be auctioned off before the lender gains possession back. If nobody buys it in the auction, the lender will maintain ownership of the property and then they can sell it themselves.

How to avoid foreclosure

If you are having financial issues, we’re going to talk about how you can avoid being foreclosed upon. Foreclosures can be very hard because something difficult has happened to put you in this position. Whether you lost your job or you had unexpected medical bills, we know it’s difficult.

The best thing you can do is take action immediately. Our recommendation would be to pick up a phone and call someone with experience. You can call us if you would like. We know people who can help you out and get you in contact with them.

You can short-sell the house. If you owe more than you would net by just selling the house at a loss, this can be a valid course of action. This may not be the best option, but it’s certainly not as bad as being foreclosed upon because a foreclosure stays on your record for so long.

There are also some ways to extend the foreclosure process, which can give you more time to find your next move.

Whatever the situation, you should get in contact with someone who has experience so they can offer you guidance. It can be difficult, but it is the best thing you can do.

conclusion

If you need help with foreclosure or you would like to buy a foreclosed property, we can help you out. Don’t hesitate to call the number on our website.

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