Foreclosure is the seizure of a property by a lender after a homeowner failed to make the payments for the principal as well as interest payments for the mortgage. The lender evicts the homeowner and sells the asset as indicated in the contract of mortgage.
A homeowner is considered to be in default when he or she fails to pay the mortgage for one month. The lender notifies the homeowner of the default in payments. The lender can foreclose the property if the homeowner continues to default on mortgage payments for three to six months and has not made payments for the missed payments after a certain grace period.
The borrower will have a hard time catching up with mortgage payments when he or she has been defaulting on the mortgage payments. Lenders add interest on missed payments.
Each government has its laws with regards to foreclosure. Laws often tackle how the lender must make the foreclosure public or make known to the homeowner, the options of homeowners to catch up with loan payments, and process of selling the foreclosed property.
In the United States, there are 22 states that make it the norm for judicial foreclosure which means that the lenders must secure the court’s permission to foreclose. The lender must prove that the homeowner has been delinquent with mortgage payments before the court approves the foreclosure. Florida, New York and Illinois are some of the states that follow the judicial foreclosure.
The local sheriff auctions off the foreclosed property after the approval of the foreclosure. The bidders will have to make a bid with that will allow the bank to recover the amount owed by the homeowner. In other cases, the bank becomes the owner of the property after foreclosure and will be the one to sell the property.