To understand what happens when a house goes into foreclosure, it is good to have a background on what would cause a lender to foreclose in the first place. Generally, foreclosure is a mortgage lender’s remedy when a borrower is not paying the mortgage. This can be caused by many different reasons including loss of job, cutback in hours and wages, a medical issue either directly for the borrower or for a family member, a death in the family, divorce, or a variety of other reasons. Additionally, it has become common that there is a dispute between the borrower and the lender as to how much the payment should be.
Any of these reasons mentioned above may cause the borrower to be unwilling or unable to keep up on the mortgage payments and cause the loan to become “delinquent.” Once this happens, the lender typically begins the foreclosure process after about 3 months of non-payment by the borrower. Foreclosure is the process by which the lender decides to cut its losses and take back the collateral securing the mortgage loan, when the loan isn’t being paid.
The foreclosure process itself can last between a few months and a year depending on the state. California, along with most western states, uses a “non-judicial” foreclosure process where no Court action is required for a lender to foreclose. The non-judicial foreclosure process is often faster than the judicial foreclosure process where a lender has to ask a judge’s permission before moving forward with a foreclosure. During the foreclosure process (either judicial or non-judicial), the borrower typically retains possession of the property in question throughout the foreclosure process. The borrower can continue to live in the property, or even rent the property during this time, as they would still be the lawful owner and title holder until the foreclosure process is complete.
So, generally, to answer, what happens when a house goes into foreclosure: nothing until the foreclosure is complete and title transfers. At the point when the property sells at a foreclosure sale and title transfers under a “trustee’s deed upon sale,” the borrower then must vacate the property so the new owner (foreclosing lender or 3rd party), can sell the property to a new owner, typically at a highly discounted price.
The foreclosure process can be long and frustrating for a homeowner desiring to keep their property, this offers opportunity to keep the property by working with the lender to modify terms of the loan, or the opportunity to sue the lender if a dispute has arisen regarding what the agreed upon terms should be. Many borrowers are realizing they do indeed have options before and during the foreclosure process. Only a qualified real estate and foreclosure attorney can advise borrowers on their legal rights and give legal advice in regard to unfortunate foreclosure situations.