How the Foreclosure Process Works

Foreclosure is a challenging and stressful situation that no one wants to encounter. However, statistics indicate that in today’s debt-riddled society, home foreclosures are on the rise. With that in mind, it’s wise to understand how the foreclosure process works.

Understanding that different states have individual laws regarding foreclosure, the process presented below is a general guideline of what can be expected. Time frames and steps may vary from state to state.

How Foreclosure Begins

It all starts when a homeowner misses multiple monthly mortgage payments. Usually, the third skipped payment triggers a Notice to Accelerate or Demand Letter from the lender showing the total amount due to bring the account current. There is a 30-day period during which the full amount can be paid to satisfy the delinquency, which is usually around the time that the fourth payment also becomes due.

If the full amount stated in the Demand Letter is not received by the lender on or before the due date, that’s when foreclosure proceedings are likely to begin. When this happens, mortgage companies get their attorneys involved to start handling matters.

Once a delinquent mortgage reaches this stage, legal fees start accumulating that will be charged to the homeowner. Contact with a foreclosure counselor should have been already made, but if not, it’s imperative to do so at this point.

Communication is Important

Throughout this process, the homeowner should keep in contact with the mortgage company to keep it apprised of what plans might be in place to get caught up.

Also, there is valuable information available from the U.S. Department of Housing and Urban Development (HUD). Foreclosure avoidance counseling as well as state and local information is available through HUD. It is recommended that people who are at risk of losing their homes should try to prevent foreclosure by utilizing all available resources.

Sale is Scheduled

At some point after the fourth payment is missed, if the delinquencies are not brought current, a Sheriff’s Sale or Public Trustee Sale is slated. This date represents the actual foreclosure day, a sign that the time to vacate the house is just around the corner.

Notification to the delinquent home owner can be made through an ad in the local newspaper, by mail, or by having law enforcement officials physically post the public sale notice on the property.  

The time between the public foreclosure notice and the actual sale date can range anywhere from one to three months. Homeowners generally have the option of bringing the account current, plus legal fees, up until the home is actually sold at sheriff’s sale. Homeowners are expected to be out of the home prior to the sale of the property.

After the Sale

Most states have a redemption period, which begins the day the home is sold. A redemption period is a predefined length of time that allows the foreclosed home owner to bring the mortgage payments up to date, pay legal fees, and the costs incurred during the foreclosure process. If these payments and fees are paid during the redemption period, the home can usually be reclaimed.

Foreclosure Avoidance

Homeowners who cannot make mortgage payments often shy away from contacting the lender, but this is the wrong approach. It is important that communications take place between the two parties, because foreclosure is a costly process for lenders as well as homeowners. Many mortgage companies encourage their representatives to work with customers to take steps to avoid foreclosure.

And in many cases, these special arrangements are easier to set up when a loan is only one or two months behind, as opposed to three or four months.

People who suspect they may be at risk of foreclosure should take action as quickly as possible to avoid this lengthy, legal entanglement. There are more resources available today than in years past, so it’s best to travel down these helpful avenues before winding up at the dead end of home foreclosure.