Foreclosure is a tricky, somewhat complicated process. But, in order to demystify the process, as well as celebrate the creation of our new Foreclosure section – dedicated to information and as a resource for people in the Southwest Florida region going through foreclosure in cities such as – Estero, Fort Myers, Bonita Springs, Naples, Golden Gate and Cape Coral – we’ve put this blog together. 

Understanding Foreclosure – to understand foreclosure there’s a few key things you must keep in mind. First, foreclosure is primarily a legal process that one has to go through when they don’t meet the obligations of their loan (IE, your bank initiates this process if you stop paying your mortgage). Although technically a foreclosure can apply to many different kinds of financial relationships – for the purpose of this article and our website we’re concentrating on scenarios where a homeowner like you – has taken on a mortgage for the purpose of buying a home. And then, over time, because of various circumstances, you have stopped making payments . 

Finally, another important note on this blog – we’ve broken out this process in two major dynamics – one from you perspective as borrower and the other perspective as the bank – or loaning institution. It’s important to understand this difference so that you have a complete understanding of the process. 

Finally, please reach out to us if you have any other questions – as we can help homeowners going through these scenarios, save their sanity, their equity and their credit. 

1. Loan Default

Bank’s Perspective: If a borrower fails to make mortgage payments on time, the loan goes into default. The bank will typically wait until a few payments have been missed (usually 3 or more) before taking any serious actions. They might charge late fees and start to send notices to the borrower about the missed payments.

Your Perspective: Life events or financial difficulties might lead to missed payments. During this time, the borrower might try negotiating with the bank for a loan modification or other solutions to avoid foreclosure.

2. Notice of Default (NOD)

Bank’s Perspective: Once a certain period has passed with missed payments, the bank issues a Notice of Default, a formal document indicating that the borrower has fallen behind. This is often recorded with the local county.

Your Perspective: Receiving a NOD can be alarming, but it’s also a crucial alert that immediate action is necessary. Some borrowers might seek legal counsel or financial advice at this point.

3. Pre-Foreclosure Period

Bank’s Perspective: This is a grace period for the borrower to either settle the overdue amounts or negotiate another solution. The bank prefers to avoid the foreclosure process if possible due to the costs and time involved.

Mortgagee’s Perspective: This period offers a window of opportunity. Options include refinancing the mortgage, selling the property (possibly through a short sale), or working out a payment plan with the bank.

4. Notice of Trustee’s Sale

Bank’s Perspective: If the pre-foreclosure period expires without resolution, the bank will move forward by issuing a Notice of Trustee’s Sale, setting a date for the property’s auction.

Mortgagee’s Perspective: Receiving this notice means time is running out. Some might consider legal avenues like filing for bankruptcy, which could delay the foreclosure process.

5. Property Auction

Bank’s Perspective: The property is auctioned to the highest bidder. If no one purchases the property, it becomes a Real Estate Owned (REO) property, and the bank takes ownership.

Mortgagee’s Perspective: Once the property is sold at auction, the borrower loses ownership. If the home sells for less than the owed amount, the borrower might still be responsible for the difference, known as a deficiency.

6. Post-Foreclosure

Bank’s Perspective: If the property becomes an REO, the bank will likely try to sell it on the open market, often at a reduced price. The bank may also try to recover any deficiencies from the borrower.

Mortgagee’s Perspective: The foreclosure will have a significant negative impact on the borrower’s credit score. It’s essential to start rebuilding credit, possibly seeking financial counseling, and finding new housing.

Throughout this process, communication between the bank and the mortgagee is crucial. Both parties often benefit from finding alternatives to foreclosure, as the process can be costly and time-consuming for the bank and heavily damaging to the borrower’s credit and housing security.