In today’s faltering economy, homeowners are facing foreclosures in increasing numbers. With mounting debt, rising unemployment rates, and a lack of access to credit, many families are falling behind on their bills and ultimately left with no choice but to default on their mortgages.

Since foreclosure is such a hot topic in the news, it’s important to understand what foreclosure means and how the process works.

Foreclosure is essentially the forced sale of a home. When a borrower defaults on their mortgage, the lender (or other lienholder) has the right, as specified in the mortgage contract, to legally repossess the property. The mortgage holder can then offer the property for sale. The proceeds of the sale must be used to satisfy the outstanding balance of the loan. Once the loan is paid off, the remaining lienholders are funded and the remaining principal (if any) is returned to the borrower.

The actual foreclosure procedure varies from state to state, but the same basic process applies in most cases.

First, the loan becomes delinquent, which means that the borrower has stopped making payments; the borrower enters into what is called default. The default period lasts approximately three months, during which time the lender attempts to contact the borrower to arrange payment.

Once the loan is in default, the lender files a Public Notice of Foreclosure announcing the intent to foreclose on the property. The borrower will then be notified, either by personal service or by publication in a newspaper, that the property is being foreclosed on.

At this point, a date will be set for a brief procedure. While the court date is pending, the borrower can continue to negotiate with the lender to establish a payment plan. During this period, the borrower will be able to remain in the home. If no agreement is reached, the foreclosure will usually be granted by the court.

Once the lender has been granted the foreclosure, the sheriff can evict the occupants and sell the property. Foreclosed properties are sold through normal real estate procedures or by public auction. Depending on the exact procedure for each state, the entire process can take anywhere from 2 months to a full year.

After the Notice of Foreclosure has been filed, the homeowner will receive many offers in the mail to refinance or purchase the home. Not all of these are legitimate, and it is advisable for the borrower to negotiate directly with the mortgage holder in any attempt to avoid foreclosure.