Foreclosure processes are different in every state. If you are worried about making your mortgage payments, then you should learn about your state's foreclosure laws and processes. Differences among states range from the notices that must be posted or mailed, redemption periods, and the scheduling and notices issued regarding the auctioning of the property. However, a general understanding of what to expect can be found on the HUD Foreclosure Timeline page.
In general, mortgage companies start foreclosure processes about 3-6 months after the first missed mortgage payment. Late fees are charged after 10-15 days, however most mortgage companies recognize that homeowners may be facing short-term financial hardships. It is extremely important you stay in contact with your lender within the first month after missing a payment.
After 30 days, the borrower is in default, and the foreclosure processes begin to accelerate. If you do not call the bank and ignore the calls of your lender, then the foreclosure process will begin much earlier. At any time during the process, talk to your lender or a housing counselor about the different alternatives and solutions that may exist.
Three types of foreclosures may be initiated at this time: judicial, power of sale, and strict foreclosure. All types of foreclosure require public notices to be issued and all parties to be notified regarding the proceedings. Once properties are sold through an auction, families have a small amount of time to find a new place to live and move out before the sheriff issues an eviction.
Judicial Foreclosure All states allow this type of foreclosure, and some require it. The lender files suit with the judicial system, and the borrower will receive a note in the mail demanding payment. The borrower then has only 30 days to respond with a payment in order to avoid foreclosure. If a payment is not made after a certain time period, the mortgaged property then is sold through an auction to the highest bidder, carried out by a local court or sheriff's office.
Power of Sale This type of foreclosure, also known as statutory foreclosure, is allowed by many states if the mortgage includes a power of sale clause. After a homeowner has defaulted on mortgage payments, the lender sends out notices demanding payments. Once an established waiting period has passed, the mortgage company rather than local courts or sheriff's office carries out a public auction. Non-judicial foreclosure auctions are often more expedient, though they may be subject to judicial review to ensure the legality of the proceedings.
Strict Foreclosure A small number of states allow this type of foreclosure. In strict foreclosure proceedings, the lender files a lawsuit on homeowner that has defaulted. If the borrower cannot pay the mortgage within a specific timeline ordered by the court, the property goes directly back to the mortgage holder. Generally, strict foreclosures take place only when the debt amount is greater than the value of the property.
This information provided by the US government on HUD.gov - content current as of September 30, 2008.
Q: If faced with foreclosure, what are my options?
A: Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control.
You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure. If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their "loan." If your money problems are long term, the lender may suggest that you sell the property, which will allow you to avoid foreclosure and protect your credit record.
As a last resort, you could consider a deed-in-lieu of foreclosure. This is where you voluntarily "give back" your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure.
Q: When do foreclosure proceedings begin?
A: Usually after the borrower has missed three consecutive mortgage payments. The lender will record a notice of default against the property. And unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale, where the property is sold to the highest bidder.
Q: Will I be able to buy again after losing a home to foreclosure?
A: It can happen. But a lot will depend on your circumstances and the mortgage interest rate you are willing to pay. Generally, most lenders will consider your request for a home loan two to four years after your foreclosure. Predatory lenders will issue a home mortgage in less time. But beware - they routinely charge high mortgage interest rates, fees, and penalties for this privilege. A quality lender will expect you to show that you have cleaned up your credit. Providing a reasonable explanation about the circumstances that led to the foreclosure - such as exorbitant medical expenses - is also helpful.
Q: How can I protect my home from creditors?
A: Check with your state. It may provide special protection through the filing of a homestead exemption, which exempts some or all of the value of your equity in the homestead - or home that you live in and the land on which it sits - from claims of unsecured creditors. Whether to file a homestead exemption will depend on your situation. Contact your county recorder's office for details.