Step 1. Try to avoid foreclosure

What is foreclosure?

When a person wants to buy a house and is unable to pay the full amount upfront, their only option is to borrow from a lender. By doing so, the mortgagee (lender) and mortgagor (borrower) establish a legally binding agreement commonly known as a mortgage.

Additionally, the mortgage comes many clauses that, among other things, allows the lender to sell the property in the event of the borrower’s default. In other words, if a borrower fails to pay their mortgage, the lender has the right to sell the property to recover their investment.

Foreclosure timeline

Foreclosure, especially with larger lenders, tends to move quite slowly. For example, if a borrower misses their monthly payment by three weeks, the “missed payment letters” may not show up in your mailbox until the last week of the month. 

In general, each lender has a different timeline regarding when to initiate foreclosure proceedings. Even so, here is what you can expect once you that fourth week hits:

  1. The lender will mail a demand letter stating that the homeowner has 20 days to pay the delinquent amount. If they fail to pay, foreclosure proceedings will begin.
  2. At some point after the 21st day, and if no payment is made, the lender will file a foreclosure notice with the court and send notice to the homeowner.
    Note: The sale date must be at least 21 days in the future from the notice date. 
  3. Once the sale date arrives, and if no attempt has been made to reinstate the loan, the property will go to auction.
    Note: Properties are auctioned at the County Courthouse on the first Tuesday of every month.
  4. If no one bids on the property, the lender will repurchase the house at the pay-off amount and will take back full control of the property.  

Again each lender is different; small ones are quick on their feet while larger ones tend to move much slower. With that said, there is no specific timeline that can be applied as each foreclosure is unique. 

Avoiding foreclosure

The best way to prevent foreclosure is never to be late with the payments in the first place. However, since you’re reading this article, it can be assumed that you, or someone you know, if facing foreclosure at this very moment. 

Do not fret; there are steps that you can take right now to lessen or even prevent the impact of the foreclosure. 

First things first, if you are or will be late on a payment, contact the lender ASAP! They are more likely to be lenient if you reach out and tell them why you’re falling behind on the payments. If your circumstances fall under the extenuating category, the lender may be willing to work out a deal with you: 

  • Family Death
  • Loss of Job/Income
  • Accident or Dismemberment

Once you get a hold of the lender — their number is on your monthly statement — ask to speak to the loss mitigation department and explain your situation to them. Loss mitigation, as their name implies, exists to help homeowners prevent foreclosure by modifying the Note’s (mortgage) terms.

Types of assistance

It is of the utmost importance that you begin the loan modification process immediately after you are aware of any hardship! Some lenders take up to 90 days to process your application, and if you call 10 days before the auction date, they will not be able to help you. 

However, if you can get the loss mitigation department to help you in time, there are a variety of things they can do for you:

  • Forbearance – When a hardship is temporary, the lender may push your payment schedule back. For example, if you expect to miss two payments, the schedule will “pause” and resume after those two months have passed. 
  • Late payment break up – In many cases, the lender will offer to “break up” the late payments and add them, in equal parts, to the next payments. For example, a late payment may be equally broken up into 3, 6, or 12 months, and added to those subsequent months.
  • Forgiveness – In (extremely) rare cases, lenders may be willing to forgive back-payments or even parts of the loan.
    Note: This is more common when the house has lost value, and the loan exceeds its market value (underwater.)
  • Modification of loan terms – if the mortgage is too much of a financial burden, the lender may offer to modify the loan’s terms. In other cases, they may refinance the loan all together for more favorable terms.
    Note: These modifications are common for borrowers who took out variable interest rate loans. They allow the borrower to get into a fixed-rate mortgage with a fixed payment schedule.
  • Deed in lieu of foreclosure – In some cases, the lender may deem that accepting the deed to the property is less expensive than foreclosing on it. If this is the case, the homeowner will sign the deed back to the lender, and the foreclosure will be no more.
    Note: The homeowner surrenders the rights to the house and moves out.

Making Home Affordable Program

If you are not able to get any help from your lender on your hardship, you may consider calling the Making Home Affordable Program at 1-888-995-HOPE or visiting them online at www.makinghomeaffordable.gov

Note: The making Home Affordable Program is a government program designed to help homeowners stay in their homes. 

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Common questions about Foreclosure

When will my lender file for foreclosure?

Most lenders will wait for the first payment to be 90 days late. This is not a rule, however. Depending on the state, a lender can file for foreclosure as soon as a payment is 1 day late. It’s up to the individual lender to decide on when they would like to take action.

Where can I get help?

Call your lender first. If you can’t get any help, go to makinghomeaffordable.gov or call them at 1-888-995-HOPE.