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Kamil Andrukiewicz's Blog

By Kamil Andrukiewicz | Agent in Farmington, CT

How Foreclosures Work

How Foreclosures Work

Let’s start with the definition of a foreclosure; a foreclosure is a process of taking possession of a mortgaged property as a result of someone's failure to keep up mortgage payments.  Typically a foreclosure occurs when all other options have been exhausted.  The process starts when the borrower stops making payments on their mortgaged property.  When a loan falls in default the lender than contacts the borrower, some banks are willing to work with borrowers and offer programs that may help them keep their homes.  Some banks will allow a short sale to occur, a deed in lieu, or they sometimes modify the loan to lower the payments, this only occurs if the borrower qualifies.  There are federal and state programs that are available to borrowers which may help them keep their homes.  If all options are exhausted, the bank sends the referral to a law firm that is licensed to practice law in that particular state.   The attorney than files a complaint with the court and the foreclosure action begins.  A foreclosure is a very complicated legal process; it is always recommended that you contact an attorney or legal aid so they can help you understand the process and advise you on how to proceed.  Foreclosure procedures vary from state to state, judicial states take longer, a foreclosure may take anywhere from 6 months to a few years.  Many states offer mediation sessions to borrowers; mediation can help two parties reach an agreement.  The law firm that represents the bank goes forward with the foreclosure unless the lender (client) advises otherwise.  There are many complications which can slow the process, such as lost notes, missing assignments, liens, clouded titles (second mortgages), bankruptcy, HAMP review and many other things. During a foreclosure action a borrower can reinstate their loan; this involves making your payments current, lump sum payments, or paying off your loan completely. The borrower is usually responsible for any additional interest, attorney’s fees, property inspection costs, appraisal fees and any other fees the bank has accrued as a result of filling for a foreclosure.  The foreclosure process rolls on until a judgment is entered by the court. Once judgment is entered, the law firm schedules the property for sale at a public auction; some states have a redemption period which allows the borrower to reinstate the loan after the judgment is entered.  Once the redemption date expires (if applicable) a sale is scheduled.  The sale is a public auction which is usually held at the foreclosed property.  Prior to the auction the law firm is usually require to publish a sale notice in a local paper for a certain amount of time, which is usually specified in the judgment entered by the court.  The lender sends bidding instructions to the law firm prior to the sale, the law firm than sends the sale instruction and documents to the auctioneer.  The auction can usually go two ways, a third party sale can occur, this is when an outside bidder purchases the property.  The other and most common result of the auction is when the bank is the highest bidder.  Once the bank becomes the legal owner of the property the file is sent to a REO company which than uses a Real Estate Broker to list the foreclosed property on the market.

State laws differ; please note this is not legal advice. Please contact a licensed attorney for any legal advice.  

Helpful link:  Helhhttp://portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure 

Kamil Andrukiewicz


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