what happens at foreclosure?

Answer 1

It varies from state to state.

Here in Georgia, once a month there is a gathering on the steps of the courthouse. People gather around and one-by-one, the properties are announced, bids are accepted, cashiers' checks change hands, the the title goes to the new owner.

But I'm thinking your question wasn't that literal, so let me give the answer another try. Assuming you want to understand the foreclosure transaction, as opposed to the physical sale, here it goes:

At loan inception, a borrower signs two documents. The first is the note, or the IOU, promising to repay the debt. The second is a security interest, which allows the lender to take the home and sell it to offset the debt if the borrower does not repay. In a foreclosure, the lender executes the security interest because the borrower has not paid. The lender has to go to court, show that the borrower has not paid dispite attempts by the lender to get payment, and get permission to take possession of the property. Once that happens, the lender usually sells the property to offset the debt and all costs associated with the foreclosure action. If any money remains, in most states, it must now go back to the borrower.

Prior to going to court, the lender will try several ways to get the borrower current. These include tacking extra payments on the end of the loan, increasing the payment for one year to get the borrower back on track, or working with the borrower to sell the property short of foreclosure. Sometimes this sale is at a loss to the lender - short sale - but the lender will lose less money than if there is a foreclosure so the lender allows this.

I hope this answers your question. If not, please post more information in your question and I'll give it another shot.

Answer 2

you lose your house and you lose your credit rating for 15 years