How Does Foreclosure Work?

Question: How does foreclosure work?
Answer: If you are behind on your mortgage payments, you might be facing a foreclosure in the near future and wondering: How does foreclosure work? In this unfortunate event, it’s important that you understand the foreclosure process and know what your options—both to avoid foreclosure and minimize its impact.
The Truth in Lending Agreement and other regulatory bodies guide the way a foreclosure unfolds. That said, foreclosure is impacted by the laws and regulations of each state, so procedures may vary from state to state.
So how does foreclosure work? The foreclosure process begins when you are behind on your payments, including both the principal or any interest that has accrued. A homeowner receives a grace period of 15 days from the due date (usually the first of the month) to make a payment. Any late payment past the 15-day grace period will incur a 5 percent late fee. A payment that is 30 days past due will also result in a delinquency notice that will appear in your credit report.
If a mortgage is marked as delinquent for 90 days or more, lenders have the option to file a Notice of Default, or a document that allows them to formally start the foreclosure process. Once this notice is filed with the state, you have a pre-determined (depending on the state) number of days, though typically 30, to pay the requested amount of money to keep the mortgage up to date.
Soon after, your lender can obtain a legal judgment that will leave you with no right to the property and an immediate to vacate as soon as possible. Some banks have “cash for keys” programs that give homeowners a payment as an incentive to leave the property in a good condition. After a foreclosure, many disgruntled homeowners will strip a house of appliances, sinks, and even copper wiring, property that now belongs to the bank. This behavior is considered vandalism or theft and may cause former homeowners legal trouble.
After the bank confiscates the house, the home will be placed on the market in what is known as a trustee sale. This is announced by a Notice of Sale, which is posted on the property. Buyers are able to bid on the home, provided they meet the amount owed to the bank. If none of the bids meet this criterion, the house will be considered an REO, or real estate owned property. An agency will then try to sell the foreclosed home until the full amount owed to the bank is obtained.