What is a Foreclosure and How does it work?What is a Foreclosure?
A foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower (the homeowner) who has stopped making monthly mortgage payments by forcing the sale of the home. This, of course, only happens after the borrower has failed to make payments for an extended period of time, has ignored notices from the bank that the payments are behind, and/or the borrower has not called the lender to work on possible payment plans.Why do sellers go into Foreclosure?
Homeowners stop making payments for many reasons. Usually missed payments are not voluntary but are often the result of:
- A Divorce and the home is worth less than what is owned and cannot be sold so the parties involved decide to let the home go
- Loss of income ~ unemployment or cut in pay
- Excessive debt ~ could be caused by mounting medical bills
- Job Transfer
- Too many foreclosures in neighborhood
The foreclosure process varies from state to state. In Nevada, lenders may foreclose on mortgages using either a judicial or non judicial process. Non-Judicial foreclosure is the most common in Nevada. This process is used when the power of sale clause authorizing the lender, in the event of default (non-payment) to sell the property to pay off the balance. Contrary to popular belief, banks cannot just take back a property when an owner stops making payments.
In non-judicial foreclosure states, the right to foreclose and sell the property actually lies with a 3rd party, known as the trustee; who has a fiduciary responsibility to both the lender and the borrower.
When you purchase a property, ownership is transferred to you using a document known as a deed. When you take a loan (in a non-judicial foreclosure state), you sign a deed of trust, which gives this third party trustee the right to sell the home if you fail to make payments. This power of sale is what makes non-judicial foreclosure possible.