Foreclosure - FCL
What is 'Foreclosure - FCL'
A situation in which a homeowner is unable to make full principal and interest payments on his/her mortgage, which allows the lender to seize the property, evict the homeowner and sell the home, as stipulated in the mortgage contract. One month after the homeowner misses a mortgage payment, he/she is in default and will be notified by the lender. Three to six months after the homeowner misses a mortgage payment, assuming the mortgage is still delinquent, and the homeowner has not made up the missed payments within a specified grace period, the lender will begin to foreclose. The farther behind the borrower falls, the more difficult it becomes to catch up since lenders add fees for payments that are 10 to 15 days late.
BREAKING DOWN 'Foreclosure - FCL'
Each state has its own foreclosure laws covering the notices the lender must post publicly and/or with the homeowner, the homeowner's options for bringing the loan current and avoiding foreclosure, and the process for selling the property. In 22 states – including Florida, Illinois, and New York – judicial foreclosure is the norm, meaning the lender must go through the courts to get permission to foreclose by proving the borrower is delinquent.
If the foreclosure is approved, the local sheriff auctions the property to the highest bidder to try to recoup what the bank is owed, or the bank becomes the owner and sells the property through the traditional route to recoup its loss. The entire judicial foreclosure process, from the borrower's first, missed payment through the lender's sale of the home, usually takes 480 to 700 days, according to the Mortgage Bankers Association of America.
The other 28 states – including Arizona, California, Georgia and Texas – primarily use non-judicial foreclosure, also called the power of sale, which tends to be faster and does not go through the courts unless the homeowner sues the lender.
In some cases, to avoid foreclosing on a home, lenders will make adjustments to the borrower's repayment schedule so that he/she can afford the payments and thus retain ownership. This situation is known as a special forbearance or mortgage modification.