What is foreclosure fraud?

Understanding the Process

While the specific steps in a foreclosure may vary from state to state, they typically include certain major actions. If you miss a mortgage payment, the lender will first contact you with a notice of delinquency or a notice of default (the name varies by state). This notice will outline what you need to do to bring the mortgage current. Most likely, you'll need to pay the entire amount owed plus a late payment penalty [source: Bryant].

If you're unable or unwilling to make the necessary payments, the lender may initiate a foreclosure sale. This can involve a suit brought against you by the lender, or it may involve a power-of-sale process, in which the lender conducts a foreclosure sale with judicial oversight but no lawsuit. The difference depends on state laws. In both cases, however, there may be opportunities to make a final payment to halt the foreclosure. More realistically, since the amount owed may be very high, you may be able to negotiate a payment plan with the lender at the start of this step.

If you can't reach an agreement with the lender, they move forward with the foreclosure. Often, state laws require the lender to notify all parties attached to the property of the sale. This can be a time-consuming process, and as it adds steps to the foreclosure, it opens doors for fraud to take place.

Finally, once a house is sold through foreclosure, the lender may seek a judgment against you for any amount owed above and beyond what the sale generated. If the house you borrowed $100,000 to buy only fetches $80,000 at auction, you're still responsible for the remaining $20,000, and the bank can pursue you for that sum.