A foreclosure happens when a property owner defaults, or stops paying back the lender for the outstanding balance on the property. Essentially a foreclosure allows the lender, let’s say a bank, to go ahead and sell the home themselves to recuperate their losses.
The good news is that if you miss one payment, your bank isn’t going to take your home away. In fact, it usually takes a few months of missed payments for the bank to begin the foreclosure process – the first step of which is usually obtaining a court order that gives them permission to move forward with the foreclosure process. If you are at risk for foreclosure, your lender will begin sending you notices demanding payments be made. To halt the process you typically need to pay the lender whatever is in arrears by a specified date.
Foreclosures happen all the time, not just during economic crises, although the rates are certainly higher during hard economic times. The sudden loss of employment is one of the biggest culprits, but a sudden death or major medical incident are also contributing factors. Foreclosures aren’t quick or cheap for lenders, which is why most like to avoid them if possible. In some cases a short sale would be more beneficial to both parties.
Another issue with foreclosures is that they often scare away potential buyers making it difficult to sell quickly for the lender. Because lenders are trying to recover their losses in a foreclosure, they don’t invest anymore into a home before reselling it. Depending on how well the original owner maintained the property, this could mean a lot of work for any new owner.
At the end of the day a foreclosure is hard on everyone. It’s terrible for the homeowner, a loss for the lender, and a real challenge for the realtor tasked with resale.