Understanding a foreclosure

Foreclosure is a process that many of us have heard and read about, especially with the bursting of the “housing bubble” and the economic downturn of 2008. Foreclosures remain an issue today in housing in America. This is the first blog in a four-part series that will come to you across 2015. We will be talking about many aspects of the foreclosure process, beginning with what it is and describing terms used when discussing foreclosure.

Foreclosure is a legal action taken by the lender (investor), when the property owner has failed to make mortgage payments in the dollar amounts and on the dates outlined in a mortgage contract. This is called default. In this process, the lending institution terminates the owner’s rights to the property in order to reclaim the money loaned to the homeowner for the purchase of their home.

With a court order, the property is able to be sold at a Sheriff’s Sale (public auction). Mortgages are secured loans and the home is identified as collateral to be used in this way so the lender has some “security” that they will receive repayment of the money loaned to the homeowner. When there is a sale of the property, the county court must confirm the sale within 30 – 60 days.

After the confirmation, the previous owner must vacate the property. The lending institution is then able to place the home on the market to sell it, placing the sale price against the money still owed on the initial mortgage. A foreclosure reference book is available for purchase from the National Consumer Law Center at: https://www.nclc.org.

When the foreclosure process begins, it runs along a timeline. Understanding the process and where one is located on that timeline is important in order for the homeowner to make the best decisions regarding their home.

The next blog describes the foreclosure timeline and where in the timeline, the homeowner can take steps to try to keep or to sell the home on their own. Attempts to keep the home can involve a workout. A workout leads to a modification of the mortgage loan. The permanent change to the mortgage document lowers the monthly payments homeowner make. The lender and the homeowner must mutually agree to the modifications.

Extending the length of the mortgage, lowering the interest rate on the mortgage, or reducing the principal owed on the mortgage can reduce the mortgage payments. The principal of a loan is the amount actually borrowed in the loan, other than the interest calculated on the principal amount. When the principal reduces, the amount of interest owed in also reduced.

Future blogs will address in more detail how to prevent foreclosure, foreclosure scams, and housing counseling and financial coaching and where you can turn to in order to use these services. In the meantime, check out the Ohio Housing Finance Agency at https://ohiohome.org for more information.

The Ohio Housing Finance Agency is available to provide you with contact information about Housing and Urban Development (HUD) Housing Counseling agencies and legal aid in your county. They are happy to help homeowners, volunteers, and community members. Their number is 888-362-6432.

By Melanie S. Hart

Melanie S. Hart is the Ohio State University Greene County Extension Office Family and Consumer Sciences Educator and guest columnist.