Foreclosure is the legal process by which a property lender recovers the amount owed on a defaulted loan by reclaiming the ownership of the mortgaged property and reselling it. Foreclosures happen when the property borrower fails to pay a series of monthly mortgage payments. Also, when other terms are violated in the mortgage document, the property is subjected to foreclosure. For instance, when a homeowner fails to pay property taxes or homeowners’ association fees, property lenders take similar legal action. The exact foreclosure process may vary in different regions of the world. Although,
Types of foreclosures
The bank files a lawsuit to initiate the foreclosure process. Judicial foreclosures in Michigan can take several months. This allows the borrower to look for another place to live and save money to make the next step. The borrower can apply for any legal defenses in the court to avoid a foreclosure.
Michigan foreclosures do not require the assistance of a court. On the contrary, the process is faster than judicial foreclosures and it takes only a few months. The process is handled by the lender following the laws of the state.
The foreclosure process: Detailed explanation
So now you know the basics of foreclosure. But, most people may not know what exactly happens in the total process of foreclosure. Therefore, in the points below, the total process of foreclosure is broadly discussed:
Step 1: Missed Payments
Foreclosures in Michigan start when a borrower misses monthly payments. When a certain number of mortgage payments are not paid, the lender request payments. Filing a foreclosure process can be expensive for the lenders too, so they initially will want to avoid foreclosure too. In some cases, the lenders are patient enough to lower or delay the monthly mortgages. These are some of the ways by which a borrower can avoid a foreclosure:
- Foreclosure mediation
- Financial counseling
- Government mortgage relief programs
Step 2: Public notice
Depending upon the state laws, the lender will issue a public notice once the homeowner misses 3-6 months of mortgage payments. The public notice, or lis pendens, is a written announcement issued by the lender as a warning before taking legal action.
Step 3: Foreclosure
The foreclosure of a property in Michigan begins once the lender issues a public notice and the property enters the early stages of repossession. From this point, the borrower has a certain period to take action to avoid a foreclosure sale and getting evicted. These are some of the choices of action a lender can opt for to avoid foreclosure:
- Paying the outstanding balance to break free from the foreclosure process
- Sell the property to pay off the loan
- Go for a short sale
- Sign the deed over to the lender
Step 4: Auction
To resell the property, the mortgage investor puts it up for auction. The auction, also known as foreclosure sale, is open to the public and takes place in a courthouse or listed online. The Notice of Trustee’s Sale (NTS) is issued before a property finally goes for auction which carries basic information such as date, time, and venue. Every foreclosure sale is different because the mortgage investor and respective state laws control the policies of the auction.
At the foreclosures auction, the minimum bid is set at the outstanding loan amount. The auction is terminated when the property is sold to the highest bidder.
Step: 5 Post-foreclosure
After the property gets sold at auction, the previous owner must vacate the home allowing the current owner to move in. Some may use the home as their residence while others may rent or resell the property.
Sometimes, the property fails to get sold at the auction because the mortgage investor does not approve any received bids. In this case, the property goes under the ownership of the bank which is known as real estate-owned property. The bank also pays property taxes while owning the property. Although, this is not a profitable course of action for the bank as it has to bear the costs of foreclosure processes.