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The Foreclosure Process


Now that we’ve defined a foreclosure and a short sale, and the significant differences between them, it’s important to understand that foreclosure follows its own path and timeline.

Step 1:  Missed Payments.  Lenders typically offer borrowers a grace period after a payment due date is missed and if the grace period lapses, a late fee may be imposed and the late payment may be reported to the credit bureaus.  

Step 2:  Default.  When a borrower continues to miss their mortgage payments, they are considered to be in default. Default times and rules will vary by lender. 

Step 3:  Notice of Default.  Alabama and Tennessee are both Non-Judicial Foreclosure States which means the lender automatically issues the borrower a notice of default (NOD) via certified mail and the NOD is recorded with the county registrar. The NOD outlines how much is owed, to include past due amounts, late fees imposed and any related foreclosure costs. Once the NOD has been received, the borrower typically has 90 days to repay what is owed.

Step 4:  Pre-foreclosure. Between the receipt of the NOD and the actual sale of the home, a borrower has the ability to pay the amount owed (in full) in order to stop the foreclosure process.  During this time period, the borrower is still the legal owner of the home.

Step 5:  Notice of sale. If the amount due is not paid in full, or repayment arrangements are not made within the NOD period, the lender will create a notice of sale and set a date and time for the sale of the home at a real estate auction.

Step 6:  Vacate residence.  Once the lender sells the property, the lender will send the borrower a notice to vacate with a defined time period to do so.  

Got foreclosure questions?  We’ve got answers.

Difference between a Foreclosure and a Short Sale?


Oftentimes, a lender will explore the short sale route in order to avoid the foreclosure process.  In our previous post, we defined foreclosure.  A short sale, according to Ramsey Solutions, is “the sale of a real estate property for which the lender is willing to accept less than the amount still owed on the mortgage.”  Typically, two factors must be present in order for a lender to consider a short sale: 

  1. The property owner must be (significantly) behind on their monthly mortgage payments.
  2. The property (for whatever reason) is worth less than the remaining balance on the mortgage.  For example, the property’s market value is currently $300,000; but, you owe $340,000 on the mortgage.

For the most part, short sales functions much like a traditional property sale:  

  • The property goes on the market
  • A buyer makes an offer on the property
  • An offer is accepted

However, with a short sale, the property owner does not accept the final offer.  Since the lender is accepting a ‘loss’, the lender must approve the winning offer…and this could potentially take a while.

At first glance, a foreclosure and a short sale can seem very similar; however, there are significant differences between them.  Key differences include:

Timing:  Short sales generally take much longer to complete than foreclosures.  With a short sale there are often multiple layers of approval involved causing delays throughout the process; whereas with a foreclosure, the lender is typically trying to recoup as much of their investment as possible so they tend to make decisions quickly.

Financial impact on the seller:  With a short sale, the seller’s credit score will likely drop significantly, but they should be able to buy a new home fairly quickly; however, with a foreclosure, it could be up to five years before the seller can purchase again and the foreclosure will stay on their credit report for a period of seven years.

Seller's involvement:  As outlined above, with a short sale, the seller is pretty much involved in every step of the process outside of determining who purchases the home.  With a foreclosure, the seller doesn’t have much say at all in what happens throughout the process.

Got foreclosure questions?  We’ve got answers.

What Is a Foreclosure?


According to MarketWatch, “The number of foreclosure starts — which is when the first public foreclosure notice happens — is up 219% since the start of the year.”  This eye-opening statistic was revealed by real estate data analytics firm ATTOM Data Solutions in their Midyear 2022 U.S. Foreclosure Market Report.  Experts predict there will continue to be an uptick in the number of mortgage delinquencies in 2023 which will lead to an increased number of foreclosed properties on the market.  Foreclosure…scary word, huh?  It doesn’t have to be.  First we need to understand foreclosure. 

Rocket Mortgage defines foreclosure as “a process that begins when a borrower fails to make their mortgage payments.  When a home is foreclosed upon, the lender typically repossesses and attempts to sell the house.”  Let’s put that into simpler terms. Mortgage loans are secured by real estate.  When you buy a home, it’s used as collateral to secure your mortgage, which means if you fail to make your monthly payments it can be legally seized by your lender in order to make good on the debt.

Have you ever considered buying a foreclosed home?  Whether you answered “yes” or “no” to that question, it’s important to know what you’re looking for and how to shop for it when the time comes. Follow along over the next few weeks as we take an in-depth look at foreclosures:  What does it mean when a home forecloses?  How does a foreclosure differ from a short sale?  What’s the process of buying a foreclosed home?  What are the benefits and drawbacks to purchasing a foreclosure?

Got foreclosure questions?  We’ve got answers.

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