If you took out a mortgage, you borrowed money to purchase your home and put up the home as collateral. Foreclosure is the legal process that allows the lender to repossess a home when borrowers fall far enough behind on their payments.
Facing eviction and losing the time, equity, and love you’ve put into a home can be a sad and scary prospect. But it’s important to remember that even if you’re months behind on your mortgage payments, there may be ways to remedy the foreclosure and keep your home. Or, if your goal is to move to a more affordable home, there could be alternatives to foreclosure that can save you money, time, and may not hurt your credit as much.
In either case, understanding the process can help homeowners identify where they stand and their options.
WHAT HAPPENS DURING FORECLOSURE?
Foreclosures can be governed by a combination of federal, state, and local laws. The foreclosure process, relevant terms, laws, your rights, and the timeline can, therefore, vary depending on where you live and the agreement you have with a lender. However, the processes tend to follow a similar path:
THE BORROWER MISSES A MORTGAGE PAYMENT
Missing a single payment won’t immediately lead to losing your home, but it’s the first step towards a foreclosure. Once a borrower misses a payment or pays less than the total amount due, the mortgage could become delinquent.
The lender, mortgage service or a collection agency may start reaching out to the borrower to inform them of the missed payments. It may also notify you of different options you have to help avoid foreclosure and keep your home.
THE LENDER SENDS A DEFAULT NOTICE
The timeline can vary, but often around three to six months after you miss a mortgage payment, the lender will send a letter or notice that your loan is in default. The notice may also tell you how much you currently owe, including past-due payments and fees, and how long you have to bring your loan current.
The notice could also be posted on the door of the home and a record of the notice might be filed with the local county office. You may see this letter referred to as a Notice of Default or lis pendens (“suit pending”).
If you don’t bring your loan current by the deadline, the lender can begin the foreclosure process. The pre-foreclosure period may be one to several months long, during which you still have options to avoid the foreclosure by repaying the amount owed, selling your home, modifying your loan, or coming to another agreement with your lender.
THE FORECLOSURE PROCESS OFFICIALLY STARTS
The lender may be able to pursue different types of foreclosures:
A judicial foreclosure is an option in every state, but isn’t required everywhere. The judicial foreclosure process goes through the courts, and you will be sent a notice of the pending lawsuit. If you don’t respond, the lender will win a default judgment. Generally, if the lender wins the suit, an auction date for the home will be chosen, and the local court or sheriff will then sell the home at the auction.
Some states allow lenders to pursue a prescribed foreclosure process outside of the courts. The process can vary, but often takes at least a month and involves one or more notices informing you of how much you owe, how you can bring the mortgage current, and when the home will be put up for sale.
THE HOME IS OFFERED FOR SALE
Either the lender, a representative of the lender, a local court, or the sheriff may sell the home via an auction. Or, in some cases, the lender simply takes ownership of the home. The lender will also become the owner if the home isn’t sold at the auction.
Depending on the state, you may have the right to repay the entire amount due and reclaim your home as long as the auction hasn’t ended. In some states, you may even have the right to buy the home back after it was sold at auction.
THE BORROWER IS ASKED TO LEAVE OR IS EVICTED
Once a new entity takes ownership of the home, you may receive a notice that you have to leave the house. You could have anywhere from a few days to several weeks to vacate, and sometimes a new owner will offer you money to move out quickly and leave the home in a good condition.
If you don’t leave, the new owner may take steps to forcibly evict you. The eviction process could also take several days to several months. Although you’ll be able to stay in the home longer, having an eviction on your record could make it harder to find a rental in the future.
YOU MAY HAVE OPTIONS IF YOU’RE FACING FORECLOSURE
Foreclosure doesn’t happen overnight, and the lengthy process isn’t a desirable outcome for borrowers or lenders.
Generally, acting sooner is better than waiting. Even if you haven’t missed a payment yet, reaching out to your lender and letting it know you expect to have trouble in the future could be a helpful first step that leads to avoiding foreclosure proceedings altogether.
Your lender may have programs that can temporarily, or sometimes permanently, lower your monthly payments. The U.S. Treasury Department and Department of Housing and Urban Development (HUD) also have many programs aimed at helping borrowers avoid foreclosure.
As the process and programs can vary depending on where you live and your mortgage agreement, speaking with a trained professional is often be a good idea. Some attorneys specialize in housing cases, including foreclosure defense, that may be able to help.