A foreclosure occurs when a mortgage lender seizes and then forcibly sells a home because the homeowner has failed to make timely mortgage payments.
Most homeowners do not have thousands of dollars in their bank accounts to make a cash purchase of a home. Instead, they usually rely on banks to finance a major percentage of the home’s purchasing price.
A mortgage contract is entered into between the owner and the bank when a bank finances a portion of the acquisition.
A home loan is officially referred to as a “mortgage.” The owner will be expected to make monthly mortgage payments against the remaining loan balance plus interest. Interest rates differ according to income and credit score.
Many homeowners struggle to pay their obligations monthly due to various unavoidable issues. When a homeowner fails to make a specified number of consecutive mortgage payments, the bank begins the foreclosure process. When the foreclosure is finalized, the bank takes possession of the home, even if the homeowner still has equity in it.
You will receive some sort of formal notification regarding the foreclosure before a bank can sell your house during a foreclosure sale. The type of notice you’ll receive is largely determined by whether the foreclosure is judicial or nonjudicial, as well as the requirements of your state’s foreclosure laws.
Most people receive preforeclosure notices, such as a breach letter or notice of intent to foreclose, in both judicial and nonjudicial foreclosures. In a judicial foreclosure, you will receive notification of the lawsuit initiating the foreclosure procedure. The notice you receive in a nonjudicial foreclosure is determined by state law, which varies greatly.
Foreclosures by the Courts
To foreclose in around half of the states, the bank must file a complaint in court. This is known as judicial foreclosure.
When Can Foreclosure Be Started?
Under federal law, a foreclosure cannot begin until you are more than 120 days late on your loan. However, under certain conditions, the process may begin sooner.
Notice of Preforeclosure
If you live in a state where foreclosures are handled in court, you may receive 30 days notice from the bank in the form of a breach letter if the conditions of your mortgage or deed of trust demand it. Furthermore, certain states require the lender to provide a preforeclosure notice.
Official Foreclosure Notice
When a foreclosure action is filed in the appropriate court, you will undoubtedly receive a summons and complaint. Most persons have 20 to 30 days after receiving notice of the lawsuit to respond. If you file a response disputing the foreclosure action, it might take months—or even years—for a judge to rule on whether to award the foreclosure.
After You Have Received Formal Notice of the Foreclosure
Even if you do not contest the foreclosure proceedings, the sale is normally delayed for about a month after the judge issues a foreclosure order. So you’ll probably have a couple of months between when you first learn about the lawsuit and when the court directs the sale.
If you opt to fight the foreclosure in court, you’ll undoubtedly have at least twice as much time, if not more.
The Foreclosure Auction
If the judge orders a foreclosure sale, you will most likely receive notice of the date and location of the sale. In Connecticut and Vermont, however, the judge can transfer title to the property as part of the foreclosure judgment—without a foreclosure sale—through “strict foreclosure.”
In the remaining states, the foreclosing bank may choose to foreclose through an out-of-court (nonjudicial) method. To accomplish a nonjudicial foreclosure, the bank must follow steps outlined in state statutes meticulously.
Official Foreclosure Notice
The amount of time you have from the initial formal notice that foreclosure proceedings have begun to the date your property will be sold varies by state, as do the procedures in the interim.
According to state law, a notice of default provides you a specific length of time to bring the loan current by making up all back payments, followed by a notice of sale (if you haven’t made the loan current by the deadline)
A combined notice of sale and right to cure informs you that your house will be sold on a specific date if you do not make up the missed payments.
- Month Zero: You’re having trouble making payments, but you’re still on time. You must juggle bills, trim spending, and work additional hours. You are hopeful that you will be able to make things work, so you do not contact the lender to explain your financial condition.
- Month One: Your debt has finally caught up with you, and you cannot make your mortgage payment this month. Perhaps you have unforeseen costs or have lost your job. The bank will likely phone or write to remind you of your payment. Late fees begin to mount.
- Month Two: You can still not make this month’s payment, let alone the previous month’s. Your phone starts ringing nonstop. You are nervous or embarrassed and refuse to take any bank calls. You try to forget about the problem as late fees continue to mount.
- Month Three: You watch as 90 days of missed payments pile up without the capacity to pay. You receive a letter from the bank headed “Notice to Accelerate” stating that you must pay a particular amount to the bank within 30 days, or your entire outstanding balance will be accelerated. This means that at the end of the 30-day term, the outstanding mortgage will be due immediately and in full. Late fees continue to mount.
- Month Four: The Notice to Accelerate’s due date has gone by, and you have yet to make a payment. The bank will then believe you have no intention of making a payment and refer your account to the legal department. The legal foreclosure process has now begun. The legal department’s lawyers will launch a foreclosure suit in state court while late fees continue to accrue.
- Notice of Sale: Your house will be advertised for sale, depending on your jurisdiction, how quickly the courts act, and whether you make any arrangements with the bank. The bank now owns your home and wishes to sell it for as much money as possible. A note will be mailed and taped to your door informing you of the sale. Regardless of the notice of sale, you still have the option to negotiate with your lender and avoid the sale.
- Redemption: While your home is being auctioned due to the foreclosure, you still have a limited time to reclaim it by paying all outstanding expenses. This is referred to as the redemption period. When the redemption period expires, the new owner will take possession of the property, and your claim to it will be permanently lost.
Contact a lawyer if you have any questions about any of these steps in the foreclosure timeline and overall process.
Do I Need an Attorney if I’m Facing Foreclosure?
Foreclosure is a stressful, upsetting, and challenging process that can be avoided with the help of a local foreclosure attorney in your area. An attorney can help you arrange a new payment plan or avoid foreclosure.