Foreclosure can become a drawn out process.

Because the foreclosure process differs to some extent from state to state, it is a good idea to consult your state’s particular foreclosure laws. In fact, if you are worried about having your home foreclosed on, it is probably a good idea to meet with an accredited financial adviser or foreclosure attorney. Even if you are not a homeowner, or you do own a home but do not have any issues making your mortgage payments, it is still good to have an understanding of how the foreclosure process works.

Foreclosure Process Example

As an example, imagine a hypothetical homeowner named “Josephine”. After living in their home for a few years and paying the bills on time every month, Josephine loses her job.

She starts looking for a job and has some money saved up to cover her expenses in the mean time. After a few months of being out of work, Josephine’s funds begin to run thin and she misses the mortgage payment deadline for May. Almost a week goes by, but she eventually gets the money together to cover the payment plus a late fee.

A month later, June’s mortgage payment is due. Still without a job, Josephine’s financial situation has even further deteriorated. She misses the due date and weeks go by without a payment. Before she knows it, July comes around and another payment is due.

Realizing that two mortgage payments, plus late fees, are due, Josephine starts to panic. She looks at her checking accounts, investments, and savings, but cannot come up with enough money. Josephine does have almost enough to cover the first missed payment, but her lender will not take it. Like many mortgage lenders, hers refuses to accept partial payments.

Her lender has been calling her, at all hours of the day, every day. After a couple weeks of this, she throws her home phone at the wall, breaking it into countless pieces. Eventually, they start calling her on her cell phone instead. Now three months behind on her mortgage with no job, money, or ideas, Josephine stares at the dent she made in the wall from throwing her phone, and realizes she is going to lose her house.

When the Court System Gets Involved in The Foreclosure Process

At this point, her bank can file suit with the court system in what is known as a judicial sale. The court would send Josephine a letter demanding payment, allowing her 30 days to respond and avoid foreclosure. When that does not happen, her lender can ask for the property to be sold at auction after a judgment has been entered. A few months later, the sheriff’s office auctions off the house and Josephine is served with an eviction notice.

Alternatively, if Josephine lives in one of the 29 states that allow it, foreclosure might be carried out by the power of sale method. In this case, the mortgage lender is the one that would serve her with the papers demanding payment. After a period of time during which payment is not made, the lender has a deed of trust drawn up. This deed transmits possession of the house temporarily to a trustee, who then sells the property at public auction on the lender’s behalf.

Other Details Involved After a Foreclosure

Whatever method of foreclosure is used in Josephine’s case, it is important to note that she probably is not finished dealing with the foreclosure after the house is sold. For example, if the house is sold for less than what she paid for it, she may still be liable for the difference. Similarly, if Josephine had taken out any loans against the house, i.e. home equity loans, any outstanding debts from these creditors need to be paid from the auction proceeds as well; if these debts are not satisfied completely, she could be subject to deficiency judgments for the rest.