Loss Mitigation (Payment Arrangement, Loan Modification)
Early on, a lender will start making calls and sending the borrower letters reminding the borrower to pay. Borrowers can workout payment arrangements, request a loan modification, and negotiate to resolve the problem. This part of the process can continue until the foreclosure occurs, however, the deeper the process goes, the more likely the lender may just decide to foreclose rather than work something out.
You should offer to pay what you can, and save your funds even if they reject your offers. You may have to call the lender repeatedly before you get results. You should apply for a modification of the loan that will result in making the loan affordable. A link to the government program that encourages lender to modify loan is listed below. Be careful of people or companies that offer to help and charge a lot of money up front, or require signatures on complex documents or deeds. There are many scams out there.
First Notice - "Notice of Default" (Borrower Has At Least 20 Days to Fix Problem)
This is a notice that must be sent by certified mail to the borrower. The borrower does not have to receive it (so it makes no sense to avoid picking it up -- it is best to know what is happening). The notice should state the reason for the default and must give the borrower at least 20 days to fix the problem. The notice will typically state that the lender intends to "accelerate" the loan unless the problem is fixed by the deadline -- that means that the lender can demand the entire balance of the loan be paid off after the deadline passes, otherwise they can foreclose.
A borrower should not assume the problem is going away, even if a lender representative says so. Get it in writing. Some collection departments of lenders say anything to get money even when they know this will not stop the sale. Some lender agents may want to help, but don't have the power to stop the sale, or some just want borrowers to sit on their hands and not get to an attorney in time that might help.
Second Notice - "Notice of Sale" (Borrower Given At Least 21 Days Before Sale)
If the problem is not fixed on time, the lender can accelerate the loan if allowed, and "post" the property for a foreclosure sale. The lender must send another notice (the second notice) by certified mail indicating the date of the sale and other information. This notice must be given at least 21 days before the sale. Similar to the first notice, there is no requirement that the borrower actually receive the notice. A borrower should pick all certified mail from the lender so at least he will know what is happening. Note that the sale can only occur on a first Tuesday of a month, and that the notice of sale is posted at the courthouse (or other designated area) and filed with the county clerk (which is how others learn of the sale and may attempt to contact you to help with bankruptcy, or attempt to scam you with bogus offers to help avoid foreclosure).
Foreclosure Sale - Only On the First Tuesday of the Month
Foreclosure sales can even be conducted on holidays (so long as it is the first Tuesday of the month). The highest bidder is awarded the title to the home. Typically, the lender bids the outstanding balance of the loan and is the winning bidder at the sale. The person conducting the sale is called a trustee, and the trustee will accept the money and sign a "trustee's deed" over to the highest bidder. The borrower does not have to vacate the home on this day.
Also note, the filing of bankruptcy will stop foreclosure up until the sale is completed. A bankruptcy forces a lender to accept a payment plan, but to actually save the home the borrower must be able to afford regular payments and also paying some on the amount behind (which can be spread out over a five year period depending on the circumstances). A lawyer is often needed to successfully navigate bankruptcy, and a counseling course is required prior to filing the case.
Eviction Procedure - Notice to Vacate, Hearing
The new owner of the property (usually the lender) will eventually give a homeowner a three day notice to vacate the property. (Note that if a landlord is foreclosed on, the tenants of the landlord get to live out the lease agreement by renting from the new owner, and if the lease is expired they get at least a 90 day notice to vacate per the new federal law called "Protecting Tenants at Foreclosure Act of 2009" passed May 20, 2009 and expiring December 31, 2012.)
After the notice to vacate deadline passes, the new owner can file an eviction case in the local justice court where the property is located. There are few defenses to an eviction case like this (you cannot argue that the loan was unfair for example). You can argue that the notice was incorrect. The justice court will typically hold a hearing on the case in about a week (but contact the court to confirm). If the homeowner loses the case, the court must give the person five days to leave or appeal (counting weekends).
Appealing Eviction Case to County Court
After the justice court rules against you, you have a right to request the county court review the case. The appeal must be filed within five days of the eviction judgment. If you are indigent, the homeowner can file an affidavit of inability to pay costs for appeal, and avoid having to pay court costs. The justice court should have the forms available and should even be willing to notarize them for you. If you did not file a written answer in the justice court case, you have to file one in the county court (which can simply state you deny everything and request a trial).