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The Steps of Foreslosure
Every one keeps talking about foreclosure and the housing crisis, but what really happens if you are facing foreclosure. Although the process varies by state, the following is a summary of what normally occurs when the bank decides to foreclose.
If you are currently facing foreclosure, take immediate action by calling your lender. The sooner you work out a solution, the more likely you will be able to keep your house, and remember, everyone thinks they have more time, but eventually, without some type of intervention or plan, time runs out and foreclosure happens.
Step One: Late Payment
Foreclosure, or the potential for foreclosure, starts from the first day that you fail to make your mortgage payment. Once you officially miss your payment deadline, the bank may call. Most likely however, they will send you a letter, especially if you have a good payment history. The letter will simply remind you that you missed a payment, and that you need to make it as soon as possible. The lender might also request that you contact them. As a side note, once you become thirty days past due, the lender may start reporting your late payments to the credit bureaus, so your credit rating may take a hit.
Step Two: Two Late Payments
Once you miss the second payment, you will be officially 60 days past due. Again, at this point, the lender will probably begin reporting your delinquency to the credit bureaus, which may affect the amount of interest you pay on other credit lines, like credit cards.
Once you become sixty days past due, the lender will begin trying to contact you again, but this time, with more diligence. Expect to receive not only a letter, but telephone calls as well. Avoid your instinct when the phone rings. Answer it. The sooner you talk to the lender, the more likely you will be able to avoid foreclosure. Remember when you speak to the lender that foreclosure costs the bank money, so the lender wants you to make your payments.
Step Three: Three Late Payments
Once you become three payments behind, the bank will accelerate its effort to get your mortgage payments. In addition to the phone calls, the bank will likely send you a letter called a Demand Letter. The Demand Letter will likely detail the total amount you owe and give you a specific time for when the payment must be made to avoid foreclosure. The letter may also detail the steps the lender will take if you fail to make the payment.
Once you receive the Demand Letter, it is imperative that you either make the payment or make arrangements. Once you miss the deadline, the bank will be less willing to work with you on foreclosure options.
Step Four: Four or More Late Payments
Once you have missed four payments, you are likely to be nearing the deadline given to you in the demand letter. At any point after this, the lender is likely to start foreclosure proceedings, especially if they have not heard from you or you have been avoiding their calls.
Anytime after the fourth missed payment, expect foreclosure without some type of drastic intervention. Remember that along with foreclosure, your credit rating is consistently declining. If the bank does foreclose, you will incur additional debt on top of your mortgage, including attorneys fees or collections costs.
Step Five: The Sale
Once the lender decides to foreclose, and again this might happen anytime after the third missed payment, the lender's attorney will schedule the sale. Generally, you should receive notification of the sale through a letter, but the bank might also post notices on your property in the form of signs on your door or in your yard.
How long it will take your bank to schedule a sale varies from state to state. Your demand letter will give you more details, but once you miss the demand letter deadline, the timeline could be as short as two months. You will be required to leave the property by the time of the sale.
The lender will allow you to pay the past due amount plus any other fees by the time of the sale. If this is possible, then the bank will cancel the sale and allow you to keep your home. Keep in mind however that the amount due will be substantially more than just your back mortgage payments.
Redemption Period
Even if you go through a sale, you may still be able to redeem your house. However, the price is likely to be high. Once the sale takes place, you will enter the Redemption Period. The Redemption Period is a short span of time after your home has already been sold at a foreclosure sale when you can still reclaim your home. You will need to pay the outstanding mortgage balance and all costs incurred during the foreclosure process.
Many states have some type of redemption period but not all do; however, the process varies greatly depending on the state.
Remember if you or someone you know is facing foreclosure, the best alternative is to speak with the lender as soon as possible. Alternatives exist to help homeowners facing foreclosure, but if you don't speak to the bank about your problems, they can't help you.
This timeline is general, so you should contact a foreclosure counselor or your lender to learn more about the exact dates in your state.
Published on BankingQuestions.com 11/07/08
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