legal process in which mortgaged property is sold to pay the loan of the
defaulting borrower. Foreclosure laws are based on the statutes of
are 3 types of foreclosure;
is a judicial foreclosure state. This is the most preferred of the
three types. It involves the sale of the mortgaged property done
under the supervision of a court, with the proceeds going first to satisfy
the mortgage, and then to satisfy other lien holders, and finally to the
mortgagor. Because it is a legal action, all the proper parties must
be notified of the foreclosure.
provided by HUD.gov)
First month missed payment - your lender
will contact you by letter or phone.
Second month missed payment - your lender
is likely to begin calling you to discuss why you have not made your
payments. It is important that you take their phone calls.
Talk to your lender and explain your situation and what you are trying to
do to resolve it. At this time, you still may be able to make one
payment to prevent yourself from falling three months behind.
Third month missed payment - after the
third payment is missed, you will receive a letter from your lender stating
the amount you are delinquent, and that you have 30 days to bring your
mortgage current. This is called a "Demand Letter" or
"Notice to Accelerate". If you do not pay the specified
amount or make some type of arrangements by the given date, the lender may
begin foreclosure proceedings. They are unlikely to accept less than
the total due without arrangements being made if you receive this
letter. You still have time to work something out with your
Fourth month missed payment - now you are
nearing the end of the time allowed in your Demand or Notice to Accelerate
Letter. When the 30 days end, if you have not paid the full amount or
worked out arrangements you will be referred to your lender's
attorneys. You will incur all attorney fees as part of your
varies by State.
Sheriff's or Public Trustee's Sale - the attorney
will schedule a Sale. This is the actual day of foreclosure.
You may be notified of the date by mail, a notice is taped to your door,
and the sale may be advertised in a local paper. The time between the
Demand or Notice to Accelerate Letter and the actual Sale varies by
State. In some states it can be as quick as 2-3 months. This is
not the move-out date, but the end is near. You have until the date
of sale to make arrangements with your lender, or pay the total amount
owed, including attorney fees.
Redemption Period - after the sale date, you may
enter a redemption period. You will be notified of your time
frame on the same notice that your state uses for your Sheriff's or Public
have several options to consider to avoid
foreclosure. Below is a list of them along with a brief description
of each option.
temporary agreement that delays payments for a short period of time.
Mortgage lenders only allow forbearance if you can prove you'll eventually
acquire funds. Some common examples would be a tax refund or a bonus
where you can show future earnings that can bring your mortgage up-to-date.
you're behind on your mortgage payments, a reinstatement can take place
when you make a lump sum payment by a specified date, bringing your account
back to current status. Lenders often combine reinstatement with
If you're behind on your payments, the mortgage company may give you a
fixed amount of time to catch up, by combining a portion of your past due
amounts with your regular payments, allowing you to get current.
The terms of your loan can be adjusted. Changing the amortization table or
lowering your interest rate can make a big difference, reducing your
monthly payment amount to something you can afford.
Federal Foreclosure Help
In response to the recent mortgage crisis, the president has announced a
refinancing program called FHASecure. This new
product offered through the Federal Housing Administration (FHA) is
estimated to help some 240,000 homeowners prevent foreclosure. This is
rather notable, as the FHA's previous policy would not allow for
refinancing of borrowers in default. It does, however, come with
restrictions; you must meet the following criteria to qualify:
1) You must have a history of on-time mortgage payments and a decent credit
history to qualify.
2) Your interest rates must have or will reset between June 2005 and
3) You must have 3 percent cash or equity in your home.
4) You must have a sustained history of employment.
5) You must have sufficient income to make your mortgage payments.
The primary purpose of FHASecure is to provide
help to the well-meaning borrowers who may have been lured into costly
loans featuring teaser rates, and may be facing mortgage foreclosure. You
can find more information on the FHASecure plan
A few options for individuals dealing with severe financial circumstances
or can no longer afford their mortgage payments and want to stop home
A deal between the homeowner and lender to sell the property for less than
it's worth, with the mortgage lender taking the loss.
This last resort allows you to "give back" your property to the
lender. This will leave a mark on your credit record, but it will stop
foreclosure, which is much more severe.
A non-profit credit counseling agency may be able to help you prevent a
real estate foreclosure. Be especially leery of fee-based groups
approaching you with bank foreclosure solutions. They'll often
recommend (at a cost) what we've covered above, most of which you can do on
your own or with the assistance of a HUD-approved counseling agency. You
may find a HUD-approved housing counselor
online or by calling (800) 569-4287.
Request a FREE consultation and