The term foreclosure is thrown around a lot these days and tends to mean different things to different people. So what is a foreclosure? And what does it mean to you as a home buyer or home owner?
A foreclosure is actually a legal process. This foreclosure process begins when a home owner misses their first mortgage payment. Usually the lender will issue a notice of default if the homeowner is delinquent on even one payment–although this can vary. This very simply means the bank intends to repossess the home and sell it to cover the cost of the outstanding balance on the loan. In Idaho, the homeowner has 115 days from this point (notice of default) to catch up on all past payments and fees or see their home go into foreclosure.
The lender will then issue a notice of sale which sets a foreclosure auction at least 120 days from that point. At the auction the lender attempts to sell the home; if there are no buyers the home becomes Real Estate Owned (REO or Bank Owned).
In real estate there are actually 2 types of foreclosure processes: judicial foreclosure (or foreclosure by judicial sale) and nonjudicial foreclosure (or foreclosure by power of sale). In a Judicial foreclosure the lender must file a lawsuit against the homeowner in a court and the foreclosure is supervised by the court. As you might have guessed, in a nonjudicial foreclosure the supervision of the courts isn’t required as was stipulated in the mortgage issued and is instead governed by state statue!
In Idaho most foreclosures are nonjudicial foreclosures (for property smaller than 20 acres).
To avoid foreclosure many homeowners seek to sell their home. If their home’s value is lower than the amount owed to the lender they will often seek to do a short sale.