When a homeowner fails to pay their mortgage, the bank will begin to foreclose on the property. Foreclosure is where the lender recovers the money owed on a defaulted loan by repossessing and selling the property secured by the loan.

If a homeowner fails to make their payments on the mortgage, the lender begins the foreclosure process, which is started when the lender files the Notice of Default (NOD) or lis pendens. A foreclosure can end in one of the following ways:

• The borrower pays the defaulted loan amount during the grace period allowed by state law, and reinstates their loan.
• The borrower sells their home to someone else during the pre-foreclosure period. This allows the borrower to pay off their loan before a foreclosure hits their credit.
• The house is sold to a third party at a public auction after the pre-foreclosure period.
• The lender repossesses the property, then sells it on the open market. Often, such properties are called bank-owned or REO properties, which stands for Real Estate Owned by lender.

Starting the Foreclosure Process

For a bank to conduct a "judicial foreclosure," it must be done in accordance with the state's judicial procedure. First, the lender must attempt to resolve the issue of default with the borrower themselves.

If this proves unsuccessful, the next step is for the lender to contact an attorney and file a court action. At this point, the attorney tries to contact the borrower to resolve the default.

If the borrower cannot afford to pay off the defaulted loan amount, the attorney will go ahead and file a lis pendens (lawsuit pending) with the local court, which notifies the public that a legal action was filed against the homeowner.

With a non-judicial foreclosure, a trustee can initiate a foreclosure without having to file a case in court first. In these cases, the trustee files a NOD and notifies the borrower according to state law.

If you're facing foreclosure, contact a real estate lawyer for experienced legal advice!