What it is:
How it works/Example:
In general, there are eight events involved in a
1. The borrower signs a contract agreeing to repay the lender over a period of time, usually in predetermined installments.
2. The borrower misses one or more payments.
3. The lender sends the borrower one or more notices of delinquency.
4. The borrower and the lender try to adjust the schedule so that the borrower is more likely to make at least some of the payments until he or she gets back on his feet. (This process is called special forbearance or mortgage modification.)
5. The borrower still misses payments.
6. The lender sends the borrower a notice of default and initiates foreclosure proceedings.
a. In a judicial foreclosure, a court confirms the amount owed to the lender and gives the borrower a set amount of time to pay up ("cure the default").
b. In a nonjudicial foreclosure, the loan document authorizes the lender to sell the property to recover the loan balance.
7. The lender the property up for sale and publishes a notice of the sale in the local paper. The notice includes a description of the property, the name of the borrower, and other information. The borrower might file Chapter 13 to stop the foreclosure temporarily.
8. A public auction occurs during business hours, and the highest bidder is usually entitled to buy the property. At that point, the borrower cannot get the property back unless he or she buys it back.
Why it matters:
Non-judicial foreclosures happen when a lender has to take the borrower to court in order to foreclose; hence the term. Many states require judicial foreclosures.
The process can take several months if not years, and it does long-term damage to a person's credit report. It is important to that foreclosure laws vary by state, and they affect the order or of these steps. It is also important to note that the federal Fair Debt Collection Practices Act affects foreclosure proceedings by stipulating the methods can use to go after bad debts.