The precise laws and rules surrounding the foreclosure system vary from state to state. However, regardless of where you live there are commonalities in the legal routine including:
- Missed Payments: A mortgage agreement is a legally binding contract. Once a borrower misses a payment they are considered to be in default of their legal obligation. Typically after two missed payments lenders will issue a "demand letter" to the borrower stating itemizing the situation. Paying off the debt at this point will halt any further legal actions.
- Notice of Default (NOD): If no payments are made, the paper trail will continue. After 90 days of missed mortgage payments, the lender will refer the case to their foreclosure department and the information will be recorded. Borrowers are generally granted a reinstatement period providing another 90 days to pay back their debt.
- Notice of Trustee Sale: Unless resolved, the borrower will receive another document stating that their property will be off-loaded during a trustee sale. Trustee sales must also be announced in local newspapers. During this the stage the bank is going to seize and sell your property to offset their loss.
- Trustee Sale: The trustee sale will occur on the date originally announced and the house in question will be sold to the highest bidder.
- Real Estate Owned (REO): If the property is not sold, the lender will become the official homeowner.
- Eviction: During all the foreclosure stages, the original homeowner can stay in place. However, once a new owner is established, they will be legally forced to move.
Foreclosure Alternatives
Aside from the psychological effects caused by the foreclosure process, the action can cause serious damage to your credit history. That is why avoiding the scenario is the best move. However, if it is too late, consumers may consider other foreclosure avoidance strategies including:
- Loan Modifications
- Forbearance
- Repayment Plans
- Short Sales
- Abandonment or Strategic Default
Secret to Avoid Foreclosure
If the above scenario is still hitting to close to home, communication with your lender is the number one trick to avoiding foreclosure. Lenders look more kindly upon borrowers who try to meet their fiduciary responsibilities and pay off their home loan and only borrowers who contact their lenders directly may be able to develop a solution to keep the roof over their head. Although there have been cases of last minute foreclosure reprieves, homeowner's on the edge should contact their lenders during the earliest stages of the process.
