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In order to purchase your house you probably had to borrow money from lending institution (bank, mortgage company, etc). When you signed the load documents you agreed that in the event you cannot make your mortgage payments, the lender has the right to foreclose: take ownership, sell the property, and keep the proceeds in order to repay the loan.
If, perchance, the sale price of your property does not cover the amount you owe, a deficiency judgment could be pursued against. Both the foreclosure and the deficiency judgment will significantly impact your ability to secure credit in the future.
Missing a monthly mortgage payment, technically puts you in default of your mortgage. The laws vary by state, but typically a loan that is late by at least 90 days can be determined to be in foreclosure. The lender files a public default notice, called a Notice of Default or Lis Pendens.
The timeline will vary by state, but here is how it happens.
- Your first missed payment: Your lender will contact you by letter or phone.
- Second consecutive missed payment: - Your lender will probably begin calling to find out the reasons why you have missed two consecutive payments. It is important that you speak with your loan officer! Describe your situation, no matter how difficult and try to find a solution to try and resolve it.
- Third consecutive missed payment: When three consecutive payments have been missed, you will receive a letter from you lender stating the amount you are delinquent, and that you have 30 days to bring your mortgage current. This is called a "Demand Letter" or "Notice to Accelerate". If you do not pay the specified amount or make some type of arrangements by the given date, the lender may begin foreclosure proceedings. They are unlikely to accept less than the total due without arrangements being made if you receive this letter. There is still time to work something out with your lender.
- Fourth consecutive missed payment: By now there is very little time left before the deadline stated in your Demand or Notice to Accelerate Letter. When the 30 days ends, if you have not paid the full amount or worked our arrangements you will be referred to your lender's attorneys. You will incur all attorney fees as part of your delinquency.
The final step is a Sheriff's or Public Trustee's Sale. The lender's attorney will schedule a sale of your property. Technically, this is the actual day of foreclosure. You may be notified of the date by mail, a notice is taped to your door, and the sale may be advertised in a local paper. The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by state. In some states it can be as quick as 2-3 months. This is not the move-out date. You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.
After the sale date, you will enter a redemption period. You will be notified of your time frame on the same notice that your state uses for your Sheriff's or Public Trustee's Sale.
If you are facing the possibility of foreclosure, there are two important questions that you need to ask yourself:
- Did you miss making your mortgage payments because of a short terms financial situation?
- Did you purchase a property that you simply cannot afford?
If the answer to question #1 is "Yes," you have options to prevent foreclosure and work out a solution with your lender. If, however, the answer to question #2 is "Yes," then you should take the necessary steps to sell the property and not simply let the property go into foreclosure.
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