‘How does foreclosure work?’ is a common question asked by many homeowners who are seeking foreclosure help and are trying to either avoid foreclosure or stop foreclosure now. Since the laws and timeline of the foreclosure process do vary from state to state, it is imperative for a homeowner to work with an attorney who is licensed to operate within the homeowner’s state. Otherwise, the homeowner is placing his or her home at risk by trusting it with a company that is not licensed, and is therefore not familiar with the laws and regulations of the foreclosure process that the homeowner’s property is in. Read our ‘Why hire an attorney?’ page to see why hiring an attorney to help avoid or stop foreclosure has a number of advantages over attempting to do it yourself.
In today’s economy, the prospect of losing your largest asset, your home, is a very real fear for many Americans. For most people, being “in foreclosure" can be very scary and intimidating. However, it is important to understand that a foreclosure is not an event; it is a process that can take anywhere from 60 days to several years depending on your state. (*Note: The process is much shorter in a “non-judicial" state where the bank does not need to go through the courts in order to sell your home at a foreclosure sale. The process is longer in a “judicial" state where the bank needs to get “permission" from a court in order to hold a sale.) It is important to consult an attorney in your state to explain the specific laws in your state.
When you miss a mortgage payment, the bank will consider you in “default" of your obligations. Even with one missed payment, the bank will send you letters informing you of your default and bringing up the possibility of the commencement of the foreclosure process. In most cases, the bank will allow you to make a missing payment and bring your loan current. In many circumstances, if your mortgage payments are not made over a two to three month period, the bank will continue to send several “demand" letters before starting the actual foreclosure process. But what happens if you still don’t make your mortgage payments?
Notice to Accelerate
Once your loan is sixty days past due, you will likely receive a notice to accelerate from your bank. Your only option at this point is to pay all of the amounts past due plus any late fees they have assessed. Included in this notice will be language stating that failure to bring the account current by a specific date will result in the entire loan amount coming current and being referred to a foreclosure attorney. This is the true beginning of the foreclosure process. What happens if you do not comply with the notice to accelerate?
Demand Letter and Notice of Default
Once your file is referred to a foreclosure attorney by the bank, the bank or foreclosure attorney will send an additional demand letter formally notifying you that if you do not pay the amounts due, the formal foreclosure process will commence. If you ignore this letter and fail to pay the amounts due, including attorney’s fees and late fees, the bank will likely send you a final notice of default. This notice will outline the entire amount owed and will be the last stage before the foreclosure attorney will commence a legal action against you (assuming you reside in a “judicial" state).
The Foreclosure Action
At this point, the foreclosure attorney can go ahead and file a legal action against you in a court in the county where the property is located. You will likely be served with a summons and complaint, and there will be several subsequent stages that will ultimately lead to a judgment against you and permit a court representative to sell your property to satisfy the outstanding balance owed. After receiving a notice of sale, your property may be sold to the highest bidder (usually the bank itself), and you may be personally responsible for any extra amounts (or “deficiency") that are not covered by the proceeds of the sale.
What You Can Do
Regardless of the foreclosure process in your state, you should not sit idly by and allow your property to go to sale. At the very least, contact the bank and let them know that you would like to resolve the issues. The earlier you become active in the foreclosure process, either by asserting your rights yourself or hiring an attorney, the more likely you will be able to prevent your home from being sold at a foreclosure sale. In most cases, there are steps you can take to prevent the foreclosure sale from occurring. In some limited circumstances, you can even save your home after a sale has occurred. It all depends upon your participation in the process ideally with the assistance of a qualified attorney.
Remember, this serves as a general outline and does not apply to every homeowner’s situation since the foreclosure process is case-specific. Consult an attorney familiar with your bank and your state laws to find out exactly how the foreclosure process will affect you.