Understanding Foreclosure

So what exactly does it mean to be facing foreclosure?

Essentially, when a homeowner fails to make his or her agreed upon mortgage loan payments, the lender (typically a bank or mortgage company) will try to avoid any additional loss by taking possession of the home, which is the collateral that had secured the loan. Foreclosure is a legal process and varies from state to state. Below is a general description of the foreclosure process. Please Note: Foreclosure laws and timelines differ from state to state. Please contact your state Attorneys General office to determine your specific states foreclosure laws.

Step One: Notice of Default

The first step in the foreclosure process is the issuance of a Notice of Default by the lender, which typically occurs after the homeowner is 30-45 days past due on their mortgage. It will usually be sent to the homeowner by certified mail. The lender will set a period of time for the homeowner to pay the lender the required amount past due and return the loan to good standing.

If you have recently received a Notice of Default or are 30 days behind on your payments, click here for additional information.

Step Two: Legal Filing

If the homeowner does not pay off the amount past due by the stated deadline, the lender may elect to proceed with foreclosure. There are generally two types of foreclosures: judicial and non-judicial. In judicial foreclosures, the lender may file a lawsuit in order to obtain a court order to sell the property. This usually happens after 90 days of delinquency. In a non-judicial foreclosure, the process follows the procedures spelled out in the mortgage (or deed of trust) that allows a trustee—the bank or mortgage company—to foreclose on and sell the property.

Step Three: Notice of Foreclosure Sale

After the required time has elapsed, typically after 120 days without making a payment, the homeowner will be sent a notice of foreclosure sale, which will provide notice of the date by which the premises must be vacated and may include the total amount in arrears as well.

Please Note: At any point during these proceedings, you may be able to keep your home if you pay off the loan and all foreclosure proceeding costs accrued.

Step Four: Public Sale

The sale of a foreclosed home could involve a public sale held by an auction, where the highest bidder can buy the property. If there are no buyers, the lender may buy the property by submitting a credit bid based on the amount owed on the mortgage. If the lender takes the property, it could be sold in a private sale at a later date.

If the homeowner has not vacated the property by the time of the foreclosure sale, an unlawful detainer lawsuit could be filed to evict the homeowner. You may ask for time to move out of the property; however the bank does not have to grant the request and may request that you evacuate the property immediately.

Foreclosure is a legal process that employs many terms that may be new to you. We’ve put together a helpful glossary to help you understand the most common words and concepts. You can always call for clarification as well.

Our HUD-approved advisors can help you better understand your financial condition and weigh your options. They are available around the clock every day, providing counseling to homeowners like you in more than 170 languages. Get the help you need. Call the Homeowner’s HOPE™ Hotline at 888-995-HOPE™ or 877-304-9709 with TTY device today!

Alternatives to Foreclosure

If you’re behind or concerned about making your mortgage payment we encourage you to call and speak to a counselor who can assist you with your lender to determine your options. Even though the thought of foreclosure is scary, stressful, and overwhelming, the best thing to do is be proactive and talk with a counselor and lender to learn your options.

Your lender might offer the following options as an alternative to foreclosure:

  • Forbearance: This option temporarily suspends payments, allowing you time to make up the shortfall. If an agreement is reached and you are able to meet its terms, the lender should not take foreclosure action against you.
  • Repayment Plan: A lender might be willing to spread the owed amount over several future payments until the loan is caught up.
  • Loan Modification: A lender might be able to modify your existing loan to allow you a more manageable monthly payment. Although this may increase the loan amount over the life of the loan, the monthly payments would be more affordable.
  • Refinance: If there is sufficient equity remaining in the property, a lender might consider refinancing your loan. In this instance, missed payments would be calculated into the new loan balance.
  • Partial Claim: If you have an FHA loan and meet HUD’s guidelines, you may be eligible for a Partial Claim, which is an interest-free loan designed to help homeowners reinstate a delinquent loan. This would be an additional loan to your original mortgage, and would be paid back either after the original mortgage is paid off or the property is sold.
  • Forgiving a Payment: Although extremely rare, a lender may sometimes forgive a missing payment provided you agree to then remain current on your mortgage from that point on. This option is extremely unlikely, but does occur.

Should you be unable to remain in your home, a lender might consider the following foreclosure alternatives:

  • Short Sale: A lender might be willing to sell the home for less than the balance due on the loan.
  • Deed in Lieu: This option gives the property rights of the home back to the lender; it has a less negative effect on your credit score and may include borrower relocation assistance.

Our HUD-approved advisors can help you better understand your financial condition and weigh your options. They are available around the clock every day, providing counseling to homeowners like you in more than 170 languages.