A Guide to the Foreclosure Process

Understanding Foreclosure Milestones and Timing

A Guide to the Foreclosure Process
January 28, 2014

Home foreclosures in the US fell to a six-year low in 2013. Nonetheless, that December, more than 1.2 million homes were in some stage of the foreclosure process. This indicates that many homeowners remain under duress, and that opportunities still exist for buyers to acquire distressed properties at below market rates.

If you are looking to purchase your first home, understanding the foreclosure process may help you find that dream property at a discount. It will also help you determine a realistic loan amount that may lessen your risk of going through a foreclosure yourself. If you are currently a homeowner and headed towards foreclosure as a result of a change in your employment status, an unexpected spike in medical expenses, or if you are considering purchasing a foreclosed home, having a thorough understanding of the overall process, as well as the specific laws in your state, can help you to make the most of the situation as well.

Here is an overview of the typical timetable that leads to foreclosure:

  • Skipped or late payments — When you miss a payment, a late fee is assessed. If your payment is more than two weeks late, your lender will call you to determine why you have not made your payment. If you are more than 45 days past due, you will receive a default letter indicating that you are in breach of the terms of your mortgage. You will be given 30 days to pay the past due amount. It is in your best interest to communicate openly with your lender at this stage of the process and make every effort to bring your mortgage current.

  • Notice of default — After 90 days, if your mortgage is still not current, your loan will be referred to your lender’s foreclosure department. Because state foreclosure laws vary, your lender will hire a local attorney to initiate proceedings. A formal notice of default will be filed with the county recorder. Be prepared for this information to appear in local news publications. States have either judicial foreclosure processes (lenders must go through the court system to reclaim the title on your property) or non-judicial processes (state statutes outline the steps that the lender must take to foreclose on your home) in place.

    At this point, your options might include refinancing, working out a repayment plan with your lender, going into forbearance (temporarily suspend or reduce your payments for a period), modifying the terms of your mortgage or a Deed-for-Lease (temporarily lease your home). You may also opt for a short sale, which has a less detrimental impact on your credit rating, as it is considered a settled debt, but the bank must approve the sale amount. If foreclosure rates in your local market or with your particular lender are high, you may have a better chance of renegotiating the terms of your mortgage and prevent foreclosure on your home.

  • Home sold at auction and redemption periods — Depending on the laws in your state, the bank could take possession of and sell your home at auction between 150 and 415 days of your first missed payment. The lender must file the notice of sale with the court. Sometimes the notice of default and the notice of sale can occur simultaneously. You may still be able to negotiate repayment arrangements with your lender at this point and optimally, avoid foreclosure (or worse, foreclosure and bankruptcy).

    It is important to note that in some instances, if you owe more on your loan than what the bank is able to sell your home for, or if you have a second or third mortgage, you may be liable to pay a significant amount after your home is sold at auction.

    Some states also have redemption periods, or a required period after the auction to give borrowers the opportunity to repurchase the home. If you are able to pay off the loan or acquire a new loan, you may be able to buy back your home. States with judicial processes in place may give homeowners as long as one year to address their delinquent payments. The redemption period for non-judicial states can be as short as a few months.

  • Eviction — Some states force borrowers out of their homes within a certain time of the bank taking possession or following the auction. Once the home is sold, the new owner must have the title prior to evicting you. In fact, an estimated 47% of foreclosed homes today are still occupied — and those occupants are living mortgage- or rent-free. Even if an occupant agrees to leave voluntarily, the eviction process could take anywhere from two months to a year or more, especially for renters who have agreements in place, which lenders must honor. Additionally, if the local housing inventory is high, or if market values have dipped, banks may also take their time to sell the home. It may also be in the bank’s best interest to keep the home occupied, postponing eviction in order to prevent damage due to neglect or vandalism.

If you are going through foreclosure, try not to let your emotions get the best of you. By continuing to maintain your home to the best of your ability -- and cooperating with your lender -- you may be able to execute a short sale (a growing likelihood as real estate values recover), or at a minimum, you may be able to avoid filing for bankruptcy. And by knowing and exercising your rights throughout the foreclosure and eviction process, you may also begin your financial recovery by reducing your debt and saving the money you need to relocate.

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