What Is a Foreclosure House?

by HomeLoan.com
The "American Dream" of home ownership becomes a major burden when people either overextend themselves, lose their income or both--often resulting in their being unable to make mortgage payments. When that happens, foreclosure is often inevitable. A foreclosure house is one that is being foreclosed upon and taken back by the lender.

When Foreclosure Happens

We all know that foreclosure means losing your home, but it's more than that. Foreclosure isn't just the seizing and selling of a home; it's the process the lender uses to take back ownership of it once you have failed to make your mortgage payments on time--or at all. A house becomes a foreclosure once the bank realizes that you can't or won't pay your mortgage and begins the repossession process. Once foreclosure begins, your options for doing anything with your property (even selling it) become much more limited.

Stages of Foreclosure

It can take from 3 monthe to 2 years for a bank to completely foreclose on a house and take possession of it, depending on the state in which you live. There are several steps to the foreclosure process that must be administered including acceleration, in which the bank "calls in" the loan. If the homeowners fail to pay the entire mortgage in full by the acceleration due date, the bank may ask the court for permission to sell the property at auction to recoup its investment losses. Once permission for the sale is granted, the lender must notify all parties involved and advertise the sale, as required by the original mortgage documents and state law. The homeowner has the right at any time during the foreclosure process to pay what is owed and keep the home. Of course, if he fails to do so, the house will be offered at public auction, with the starting bid being the amount still owed on the home. In the event the auctioneer fails to raise the starting bid, the lender automatically becomes the new deed holder.

The Right of Redemption

While it may seem as if you've lost your home once it has been sold at auction, if you hold a mortgage featuring a Redemption Clause, you may still be able to get it back. The Right of Redemption allows homeowners under some conditions to pay back their debt for a set period of time after the auction (which can be up to 2 years in some states), and get their house back from its new owners. Of course, you will be responsible for all debt owed--as well as interest and fees to both the bank and the new owners--so it'll cost you much more to get your house back than paying off the mortgage before the auction.


Foreclosure myths: The bank can kick you out of your house as soon as you fall behind on payments. This is false. No one can make you vacate your home until it has been sold at a public auction. Even then, the new owners must go through a proper eviction procedure to get you out. Once foreclosure begins, no other bank will refinance the mortgage. This also isn't true. Yes, it'll be much harder to get another lender to give you the money tor refinance your home once you've gone into foreclosure, but depending on the circumstances, it isn't impossible. Statistics show that as many as 70 percent of all foreclosures in the past ultimately refinance for easier loan terms with another lender. When the bank forecloses on a house, it also takes all personal belongings. Not true; the law only allows a mortgage lender to repossess your home, not your personal belongings.

Effects of Foreclosure

Foreclosure doesn't just hurt the homeowner who is losing her home. It hurts everyone: the lender who put up the money for the home in good faith; communities being forced to cut public services due to less property taxes being paid into the system; other homeowners who face losing more and more value of their own homes due to skyrocketing foreclosures in their area; and more. One or two foreclosed homes in a community isn't a big deal, but 40 or 50 affects everyone!

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