The term “homeowner” is a bit misleading, because until someone pays off their mortgage in full, the bank or lender is the true “owner” of the home. When people get behind in their mortgage payments, they risk foreclosure, meaning the bank takes possession of the house.
There are laws that determine how a bank must go about foreclosing. In Missouri, borrowers are entitled to the following:
- Written notice that the loan is in default
- Foreclosure can not begin until payments are 120 days past due
- The bank must notify borrowers 20 days prior to a sale and post notice in local news sources 20 times
- Borrowers can redeem the property if they pay the full amount of the loan within one year of foreclosure—provided they give notice of their intent to do so at the time of foreclosure, and that the property has not been sold to a third party
The foreclosure timeline is split into three segments.
1) Pre-foreclosure is the 120 days when the borrower is not paying their mortgage, but the bank is not allowed to move forward with foreclosure yet.
2) Next, the bank or a trustee will hold a public auction. The house will go to the highest bidder. The bank may bid on the home for the amount of the loan. If the rest of the offers come in lower, the bank owns the house.
3) Once the bank or lender takes possession, the home is termed “REO” or “real estate owned.” They will then prepare and advertise the house for sale to a third party. If it is not sold within a year and the original owner can afford to pay off the mortgage, they may redeem the property and move back into the house.