A homeowner with one or more months of mortgage arrears could potentially face going through the mortgage foreclosure process. Whilst the procedure varies considerably between states, it is sensible to understand the timescale and be aware of any foreclosure rights that may be available as soon as possible.
The Mortgage Foreclosure Process
15 Day Grace Period: There is typically a 10-15 day grace period before a house payment will attract the attention of a creditor.
Day 16: Non-payment will attract a late payment fee. Most lenders will also send out a polite reminder that mortgage arrears exist and need to be cleared.
Day 30: The borrower needs to act quickly to stop home foreclosure as they are now in default. What will happen depends on the state lived in and the attitude of the lender. The mortgage foreclosure process is both expensive and long-winded so some lenders will allow a gradual clearance of the amount owed. Others will insist that the mortgage arrears are immediately cleared in-full.
Day 45: Creditor contact will start to intensify. Most states prohibit creditors and collection agencies contacting a debtor before 8 AM or after 9 PM. The best thing to do is to talk to the lender to find out if they are prepared to be flexible.
Day 60: The lender will typically send the borrower a default notice by registered mail. The borrower is normally given 30 days to clear any outstanding mortgage arrears and stop home foreclosure. If no action is taken to remedy the situation, the case will be escalated to an internal legal department.
Day 90: The internal legal department sends all relevant documentation to a local department in order to commence the mortgage foreclosure process. It is important to note that a homeowner is given every opportunity to stop home foreclosure at any point up until the gavel falls in a property auction.
U.S. State Mortgage Foreclosure process
Judicial sale: A law suit will be filed and a letter will be sent to the borrower requesting a payment to clear the mortgage arrears and any charges. The borrower is given a period of 30 days in order to comply with the legal requirements. Non-compliance will result in a judgment being passed and the property being sold at auction. In practice, it can take 2-3 months before this happens. Once the sale has been finalised, an eviction notice will be served by the Sheriff's office and the premises must be immediately vacated.
Power of sale: Legal papers will be served requesting that full payment is immediately made to clear any mortgage arrears. A few weeks later, a deed of trust will be drawn-up allowing property ownership to be transferred to a trustee. The property will then be sold at a public auction shortly thereafter.
Whilst all states allow judicial sale, only 29 states permit power of sale. Judicial sale takes a lot longer to take place so find out which process or processes are available to lenders in order to establish how much time is available.
How to Stop Home Foreclosure
Loan modification: The Obama administration introduced the Making Home Affordable (MHA) plan on the 4 March 2009 to help stop home foreclosure. A loan modification could consist of a reduction in the principal, rate of interest, an extension of the term of the loan or even the loan type. The aim is to improve affordability by decreasing the percentage of income spent on house payments to 31%.
Short sale: If there is no possible way that a homeowner can keep-up with house payments, consider a short sale. With the agreement of the lender, it is possible to sell a property on the open market for less than the value of the loan secured on it. Any remaining debt is written-off.
Filing for bankruptcy. Filing under chapter 7 or chapter 13 will provide a homeowner with immediate court protection whilst a suitable plan is drawn up.
Understanding the mortgage foreclosure process is fundamental for any homeowner who has mortgage arrears. As soon as financial difficulties become an issue, consult a qualified debt counselor in order to discuss the different foreclosure rights and options that may be available.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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