Missing your mortgage payments usually triggers some serious consequences. It usually doesn't matter why you missed payments, either. By not making payments, you fall into default
on your mortgage loan, which triggers the foreclosure process
. This gives the bank the right to retake your house and sell it to pay off the loan, as well as the bank's other costs and expenses related to the foreclosure.
It's a complicated process, and it's generally not a pleasant one for the homeowner, but anyone facing foreclosure should have an idea of how the process works.
Types and Steps of Foreclosure Actions
Home mortgages are secured loans where the home is pledged with a bank or lender (or mortgagee) as collateral for the loan. The pledge creates a lien against the home. After a certain period of default, usually about three months (but it varies with lenders and state laws), a bank usually starts the foreclosure process.
There are two basic types of foreclosures:
- Judicial, where the bank files a lawsuit for a court order allowing it to take possession of the house and later sell it
- Non-judicial, where the mortgage document gives the bank the right to sell the house and spells out the process it has to follow. The bank doesn't have to file a lawsuit to foreclose
All states allow for judicial foreclosures, and a few states allow non-judicial foreclosures. Check the laws in your area to see which process a bank must follow in your state.
State laws vary greatly, but the foreclosure process generally involves:
- The lender giving you a written notice of default, which will likely come by certified mail
- Your being given time after proper notice to pay the lender the amount required to cure the default and to reinstate your loan
- The lender electing to proceed with foreclosure if you don't cure the default
- After the required time has elapsed, your being given a notice of foreclosure sale
- A public sale being held by auction where the highest bidder can buy your property
- When no one bids enough, the lender itself buying the property by submitting a credit bid based on the amount you own on your mortgage
- If the lender ends up with the property, it being sold by private sale at a later date
- An unlawful detainer lawsuit may be filed to evict you if you refuse to leave after the sale
It's is important to remember that generally you can stop the foreclosure and keep your house if the loan and the bank's foreclosure costs are paid off anytime during the foreclosure proceedings.
You May Still Owe After the Sale
Also, keep in mind that if there isn't enough money from the foreclosure sale to pay off the mortgage balance and the bank's expenses, the bank usually has the option to file a lawsuit against you to get a deficiency judgment - you'll have to pay whatever is still owed the bank.
Not only does this give you another bill to pay, but it can seriously affect your credit rating and your ability to get credit in the future.
Work with Your Lender
Working with your lender before the situation gets too serious may help you avoid foreclosure in the first place. You may not know it, but there may be options, such as:
- Special forbearance, where your mortgage payments are temporarily lowered or suspended
- Mortgage modification, which refinances the debt and/or extends the term and reduces the interest rate of the mortgage loan to make payments more affordable for you
- Partial claim payment paid to the lender. This brings the mortgage current with special assistance from the US Department of Housing and Urban Development (HUD)
As you work through your options, though, be wary of scam artists looking to take advantage of homeowners facing foreclosure.
Facing foreclosure can be stressful and frightening. No one wants to lose their home. Knowing your options and how the process works may give you the time you need to find a way to save it.
Questions for Your Attorney
- Can I sell my house if the bank is threatening to foreclose? What if I just walk away from my home and let the bank have it?
- Does mortgage modification impact my federal or state income taxes?
- Can I bid on my home at the foreclosure sale? What if my bid wins and it's for less than what I owe on the mortgage?