With all the talk about foreclosure circulating around, it can be easy to get a little confused. You may wonder what a foreclosure actually means, and, furthermore, if you are facing foreclosure, what are your options? In this two-part series, we will briefly and simply answer these questions to help you better understand the ins and outs of foreclosure.
What does a foreclosure actually mean?
Foreclosures occur when a property owner cannot make principal and/or interest payments on his or her loan, typically leading to the property being seized and sold. There are several steps and stages of foreclosure in which the homeowner has the opportunity to pay off his or her loan and avoid foreclosure.
After three to six months of missed payments, the borrower is notified that he or she is facing foreclosure. This begins a reinstatement period in which the borrower has the opportunity to make payments current. If the borrower does not complete the task of making the loan current during this period, foreclosure can begin in one of two ways: judicial sale or power of sale. Judicial sale involves conducting the foreclosure process through the court systems, while power of sale is carried out entirely by the mortgage holder. Typically, power of sale will occur, because judicial sale is a more time consuming and expensive process.
Following the power of sale procedure, a secured party initiates the foreclosure by having the trustee of the deed file a Notice of Default, a public notice of where the property is located that states the borrower is in default, or behind on payments. After the trustee is substituted by a representative third party, a Notice of Hearing is filed, requiring all involved parties to be present for a hearing before the Clerk of Superior Court.
During this hearing, the trustee must provide proof of four components:
- the existence of a valid debt
- a default
- a right to foreclosure and
- all entitled parties received the Notice of Hearing.
If all four elements are proven, the Clerk of Superior Court gives an order to the trustee to sell the property with a Notice of Sale, which is posted in the courthouse and on the property and published in a newspaper for a certain period of time before the sale.
The sale is conducted through a public auction and the deed is sold to the highest bidder. After the sale, the trustee has five days to file a Report of Sale with the Clerk of Superior Court, who then approves or disapproves the report and the case is finally closed.
In part two, we will discuss the options you can take to avoid foreclosure of your property.