How Does the Foreclosure Process Work?

Foreclosure is a terrifying word for many homeowners, and often this in part due to the fact that most homeowners don’t know very much about how the process works. For Birmingham homeowners concerned about facing foreclosure, understanding how the foreclosure process works can be helpful when considering various options and figuring out how to navigate difficult times.

While it might seem like foreclosure is inevitable, there are actually a number of things homeowners can do to avoid it. To help you consider all options, here’s a brief overview of the foreclosure process and some ways that you can avoid it.

What is Foreclosure?

Foreclosure is simply the process through which a lender takes back a property because a borrower defaults on mortgage payments. As you’d imagine, the process is initiated by a borrower missing payments. Generally, after the borrower misses a few payments, the lender will begin trying to contact them by phone.

The goal at this point is to come up with a plan for loss mitigation and to help the borrower keep up with payments. After talking on the phone with the borrower, or at least trying to, the lender will send loss mitigation options in writing to the borrower. During this phase, the lender is generally focused on finding a way to get the loan current.

What are the Steps of Foreclosure?

If the borrower continues to miss payments, the lender will begin the foreclosure process. This usually happens after 3 to 6 missed payments. Prior to the process officially beginning, some borrowers will receive a “breach letter.” This is not required under Alabama law, but many mortgages include a breach provision that does require it.

A breach letter simply provides the borrower with official notice that the loan is in default and states that if the default isn’t cleared, the lender can accelerate the loan and begin the foreclosure process.

The lender officially begins the foreclosure process by recording a Notice of Default at the County Recorder’s office. The Notice is also sent to the borrower via certified letter. Usually, from this point, the borrower has 90 days to get the loan current and avoid foreclosure. This is known as the reinstatement period.

If the borrower doesn’t get the mortgage current, the lender will continue moving forward with the process. The next step is recording a Notice of Sale in the county office and publishing it in the local paper. Under Alabama law, lenders have to publish the notice of foreclosure sale in the newspaper for three consecutive weeks prior to the sale.

Usually, the borrower has until 5 days before the sale to catch up on missed payments and avoid foreclosure. If they do not, the property is sold in a public auction. After the foreclosure sale, the borrower has 10 days to leave before eviction procedures are initiated.

It’s worth noting that if the sale does not cover the full amount of the loan, the lender can get a deficiency judgment against the borrower. Under Alabama law, the lender can then sue the borrower for that amount.