The Mortgage Foreclosure Process

A lot of different people are interested in the mortgage foreclosure process. One person may be having trouble with their mortgage payments, and wondering how the foreclosure process works. Another is a beginner investor that heard foreclosures can be a good way to invest in real estate, so they want to know how the process works and what that means to them. Every state is different in the type of documents that are recorded, and the time frames, but the overall process is pretty much the same. It goes like this:

1. A homeowner misses 4-6 mortgage payments.
2. The lender sends correspondence that they are going to start the foreclosure process.
3. The lender files the proper documentation publicly notifying everyone of the foreclosure process being started.
4. Foreclosure Auction.
5. Home sells to a buyer/investor or goes to the bank as a bank owned property, also called REO (Real Estate Owned).
6. Some states then have a redemption period after the sale where the home owner can still bring the loan current and save the home.

This is just an overview of the general process. I'll go into more detail below about how it works in California, and what the time frames are. Hopefully it will be helpful whether you are facing the threat of foreclosure, looking to start your rental property foreclosure investing business, or starting a business to help those in danger of foreclosure like loan modifications.

Obviously, the typical mortgage foreclosure process has to start with someone not making a payment. There are a number of reasons why this doesn't happen, and it's been something that's happening for years. As of late, the numbers have spike incredibly. This is mainly due to the special loan programs people got into with very little to nothing down, and teaser interest rates giving them payments they could only afford temporarily, and barely afford those.

The lender will usually allow about 4-6 missed payments before filling the first document call the Notice of Default (NOD). These days nothing is usual, and I've seen some people miss payments for a year before they received their NOD. Once the NOD is filed there is a minimum of 3 months before the next document can be recorded. That is a minimum time frame, but again, I've seen someone have their NOD for 18-24 months before getting the next document called the Notice of Trustee Sale (NTS). Once a NTS is filed, things are very serious. There is a minimum of 21 days that must pass before the lender can hold a foreclosure sale. They will usually set it 21 days from the day the NTS is filed. This gives the homeowner 21 days to resolve their situation or an investor that same time frame to help a homeowner in need. The lender is still willing to negotiate right up to the sale date, so never give up, but the biggest downfall for home owners in default is denial. They think something will magically happen to get them out of the situation they are in. Don't think that, take action and be informed of your options, then choose the one that best fits what you want to do.

Basically, the last step of the mortgage foreclosure process is the foreclosure sale. The home owner hasn't been able to bring the loan current, so the lender is forced to proceed with the sale of the property. This literally happens on the steps of the courthouse. There is a person there that reads off the list of properties he has, giving people chances to bid, but they don't have much time. Over 90% of these properties go back to the lender. There are only 4 things that can happen at the foreclosure sale:

1. The property will sell to a buyer or investor.
2. The property goes to the bank that is foreclosing.
3. The foreclosure sale is postponed.
4. The foreclosure sale is cancelled.

There are different reasons for being postponed or cancelled, but those are pretty much the only 4 things that can happen at the sale. In California, there is not a redemption period, so the home owner will have to leave the property. The lender or new owner will give them notice when they need to be out.

Now you are armed with the knowledge of the mortgage foreclosure process, so go use it to do some good. Remember to always consult a real estate investment authority when you need more guidance.