Steps to Foreclosure
Foreclosure is the act of claiming the title or forcing the sale of real property in order to satisfy a defaulted mortgage loan. If you are falling helplessly behind on mortgage payments, avoiding foreclosure should be a top priority. It is important that you are aware of the mandatory steps that your lender must take before foreclosure can occur so that you can adequately prepare yourself for alternatives to foreclosure. This guide discusses those steps to foreclosure.
Notice of default
If you miss a mortgage payment, your mortgage lender will likely send you a letter reminding you that a payment was due. This letter may take a more serious tone than what other collections notices might take. Known as a notice of default, this letter will let you know how much you are behind, and what to do to restore your mortgage loan to a current status. If you receive a notice of delinquency, this is the same letter and should be treated with the same level of urgency.
Anytime you have difficulty making your mortgage payment, contact your lender to discuss it with them. It is important that they know that you are making arrangements to get caught up. A good faith effort on your part can frequently delay foreclosure proceedings and extra month or more depending upon your lender. Once you receive a notice of default, now is the time to take corrective action. If you know that you will not be able to afford the home, consider prepping the home for sale immediately. Selling a home may take longer than you have time. In addition, many buyers will hold out or demand greater discounts if they know the home is in foreclosure. Putting it on the market now will generally give you more options.
If you feel that you can afford the home but just need some help to get caught up, contact your lender to request assistance. A workout arrangement can frequently allow you to restore the loan to current status. Forbearance is a common remedy that can delay or temporarily reduce payments so that you can reestablish current payment status.
Notice of Acceleration
A notice of acceleration is required under most states' laws to give you the opportunity to satisfy the loan balance in full to prevent foreclosure. Once you reach this stage, it may be too late to seek workout arrangements or other means for restoring the loan. This is official notice that the lender wants to terminate the mortgage loan. They are announcing that they intend to take ownership of your home unless you can pay the entire loan balance in full. This is a 30-day warning that you must pay the debt in full. In other words, you can bet that lender has committed to foreclosure by this point. If you make it to this point, you should take any steps to speed up the sale of the home, including price reductions. You may or may not receive a summons advising you of a court action taken by the lender to proceed with foreclosure as this is not required in all states. You commonly will receive no such summons if the foreclosure is based on a deed of trust.
If you have received a notice of acceleration and do not have a realistic opportunity to sell the home, you should take immediate action. If you think you can afford the regular payments on a permanent basis, it is probably worth the effort to make another plea to your lender for a workout. Be prepared to prove that you can reasonably afford to keep the home.
Notice of Sale
Your lender is required to send you a notice of sale once a time and date of the intended sale of your property is established. Once a notice of sale has been delivered, you only have up until that point to remedy the situation. The sale date is the date that you will no longer have any legal claim to that property. If you are able to sell the home on your own, you must close with the buyer before the foreclosure sale date. If you wish to file bankruptcy to prevent foreclosure, you must do so prior to the sale date. Once a sale has been announced, most lenders will no longer consider alternatives to foreclosure other than a sale that you initiate with a buyer. If you are able to find a buyer on your own, you must either convince the buyer to close prior to the sale date, or you must convince the lender to postpone the sale until after the closing date that your buyer requests. Otherwise, foreclosure can occur.
One last ditch effort that you can take is to offer the lender the deed in lieu of foreclosure. Although technically a foreclosure, the credit impact could be slightly less damaging since you are voluntarily giving up claim to the property. This really is a last resort since you are giving up your biggest investment.
If the property is sold at auction as a foreclosed property, your financial obligations may still not be over. Many foreclosed properties are bought by real estate speculators that pay substantially less than the property is worth. If the sale price is less than the loan balance, you may still receive notices after the sale alerting you to a deficiency that is still owed. Even though you lost the home, you could still owe money once auction fees and attorney fees are added to the remaining loan balance.
Remember the two rules to foreclosure:
Never wait and allow a lender to foreclose on your home.
Never wait and allow a lender to foreclose on your home!
You have other options that can allow you to avoid foreclosure if you act soon enough. You may be able to negotiate a workout directly with your lender if you contact them at the first sign of trouble. Workouts can include deferred payments, forbearance or even loan modification.