Foreclosure refers to the legal process by which a homeowner loses rights to a property by failing to pay off its mortgage. As such, the property becomes “foreclosed,” or repossessed, by its lender. These lenders are often banks, mortgage companies, and other lending agencies and financial institutions.
Foreclosed properties – often referred to, similarly, as “foreclosures” – are then auctioned by the lender to pay off the mortgage debt and, therefore, mitigate their financial loss. If the property fails to sell at the auction, the lender assumes ownership of the property.
In a judicial foreclosure, the proceedings take the form of a civil lawsuit that the lender files in court. The process begins with a “Notice of Default” to the homeowner. This notice informs the homeowner of the outstanding debt and allows for a grace period, known as “pre-foreclosure,” to pay off the remaining dues.
As per Philippine law, pre-foreclosure must be set at 90 - 120 days, or three to four months. If the homeowner fails to make the overdue payments within the allotted time frame, the lending institution can then move forward with the foreclosure, seizing the property and putting it up on the market for auction.
Foreclosure arises for the homeowner out of a number of circumstances, often involving losing a job, being in debt, living beyond their means, illness, personal tragedy, or inflating interest rates. While a devastating setback to the homeowner, foreclosed properties provide financial opportunities for others yet, namely for investors or home buyers looking to make money or to live off of cheaper property.