For any number of reasons, a mortgage may go into arrears. There could be a gap in work, difficulty finding tenants, or the payments just might be too much to handle on a loan. If a borrower begins to default on their mortgage, a lender can enter either power of sale or foreclosure to recoup the loan principal and interest that they have lent out in the form of a mortgage. Given that most people do not have $500,000 in savings, this is done by forcing the sale of the property that was secured to the loan.
Power of sale and foreclosure are often used interchangeably, however, there are a few key differences to be aware of. (Read more about power of sale here.)
The primary difference between power of sale and foreclosure is who owns the title of the property upon the sale. In a power of sale, the borrower remains on the title of the property, they will be the beneficiary of any profits from the sale of the house or be responsible for a shortfall.
The Foreclosure Process:
- You’ve defaulted on your mortgage payment for at least 3 months.
- Your lender will have sent you several notices of your arrears. You’ll have this time to sort out any arrears and maintain good standing with your mortgage provider.
- If you cannot make your payments, your mortgage lender will file a suit in the court system.
- The court will issue you notice, demanding that you bring your payments to good standing.
- Once this notice is issued, you’ll be given 30 days to bring payment to the court.
- If you cannot bring your payments into good standing by the end of this period, a judgment will be entered. The lender will then move to sell the property, usually through an auction.
- Once the property is sold, you will receive an eviction notice from the sheriff.
If the sale of the property is not enough to pay off the outstanding loan on the property, a deficiency judgment may be issued against the borrower. This is where the lender will make a legal claim to cover any shortfalls in the foreclosure process from the borrower.
What to Do Next:
Going through a foreclosure is an incredibly stressful time, often because it is a symptom of other financial issues. If you are worried about approaching insolvency, it is best to contact a mortgage professional to make sure your bases are covered and that you receive the advice and support you need. Book a meeting with a licensed professional here.
If you are not anywhere near this situation and have missed a few mortgage payments read up on fact about missing mortgage payments.
