How the Mortgage Foreclosure Process Works

No homeowner wants to go through the mortgage foreclosure process. However, it can become a reality if as few as 1 or 2 payments are missed. Arrears and charges build quickly, leaving the borrower with little chance of catching-up.

Why Home Foreclosure Takes Place

A change in personal circumstances, such as redundancy or a period of poor health, can seriously affect your ability to pay the mortgage. Problems aren't communicated to the lender so they have no alternative but to go through the mortgage foreclosure process. According to RealtyTrac, there were 861,664 foreclosures over the course of 2008.

* Fannie Mae and Freddie Mac confirmed that the moratorium on putting homeowners through the mortgage foreclosure process ended on 31 March 2009.

Mortgage Foreclosure Process

15 day grace period. Mortgages typically have grace period of 15 days, although only offer 10 days. A homeowner can make payment at any time within this period without negative repercussions.

Day 16. Once the 15 day grace period concludes, a homeowner will then be assessed for a late payment fee. The mortgage lender will typically send out a reminder via post to make you aware that your payment has not been received.

Day 30. Although the laws vary considerably between states, the borrower is now technically in default of the agreement. What will happen will vary considerably between lenders. Whilst some allow you to make a partial payment to gradually clear any arrears, others will insist that the full amount is cleared immediately.

Day 45. Creditor calls will become more regular. The majority of states have guidelines with respect to how the debt collection process should take place. Calls before 8 AM or after 9 PM aren't normally permitted.

Day 60. The lender will send a default notice by certified mail to the homeowner. During the next 30 days, the borrower is able to resolve the problem by clearing any arrears and additional fees accrued. Once this period elapses, the lender will refer the matter to its internal legal department.

Day 90. The process commences when documentation is sent to a local attorney. Notice of any impending foreclosure will need to be advertised in the largest local newspaper publication. The process is not quick or cheap for lenders. During this timeframe, the borrower is able to clear the arrears and stop home foreclosure at any time. Of course, the higher the level of arrears, the harder it is to raise the money.

Judicial Sale and Power of Sale

Whilst every state permits a judicial sale, only 29 states currently permit a power of sale. The paperwork will normally state which method is being used. As a rule, power of sale tends to take place more quickly.

Judicial sale: The lender will file a suit and you'll receive a letter requesting that a payment is made immediately. A period of 30 days will be given to comply. If payment is not received, judgement will be passed and the lender will be able to auction the property. This normally takes place several months after judgement. However, once your property has been sold, you will be served with an eviction notice by the sheriff's office.

Power of sale: The lender will serve you with papers requesting that payment is made immediately. Several weeks later, a deed of trust will be produced which serves to pass ownership to a trustee. The property will be sold at a public auction.

There are now a number of alternatives to going through the mortgage foreclosure process. Consider filing for bankruptcy, a loan modification or a short sale. Always consult a qualified debt counselor before proceeding.

Relevant Articles:
Advantages and Disadvantages of a Mortgage Modification
What Foreclosure Alternatives are Available?






Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.