The foreclosure process is initiated when a homeowner cannot not meet their financial obligation to the lender. The lender then takes legal steps to reclaim their property because the loan is not being satisfied. The foreclosure process is very complicated, and each state has different laws pertaining to it.
A lender will usually begin the foreclosure process after three consecutive missed payments. The whole process from start to finish will likely take about 6 months, after which time the property owner will need to vacate the premises.
The period between the first missed payment and the crucial third missed payment is the pre-foreclosure period. During this time the lender will likely give the property owner a demand letter. This letter asks for the full balance due in addition to all other legal fees, penalties and late fees. If the demand is not met, then the lender will move forward with the foreclosure process.
Notice of Default
Once the official third month has come and there has still not been a payment made, an official notice of default is sent to the property owner via certified letter. This is a last-minute plea to the property owner to make good on their loan. The foreclosure process does not stop, however. Foreclosure auction dates are set, government agencies are informed and the foreclosure is listed in the newspapers for potential home buyers and investors to peruse.
At this point the lender wants to recoup their losses, so they will generally proceed with the auction. If the property owners have not vacated the home, then they must do so immediately. If the home is not sold at auction, then it will go back on the market. If it is sold, then the money is used to settle all debts, including all back property taxes.
Many states offer a redemption period that allows the original owners to buy back the house. Even if the auction is complete the owners would be allowed to repurchase the home if they could come up with all necessary fees. This would include the price of repurchasing the home, legal fees and any possible penalties.