Steps of Foreclosure

By, Brenne Meirowitz

Although there has recently been an upturn in home sales, the inevitable steps of foreclosure are still threatening many homeowners.  While it is not particularly unusual to get into financial trouble these days, especially with regard to consumer debt,   however,  losing one’s home to foreclosure can be one of the most devastating experiences that an individual or family can face in a lifetime.

Given the current economic downturn and the worldwide recession, many people are losing their jobs, the benefits that accompanied their jobs, as well as their life savings from investments. As a result, a downward, personal economic spiral begins, which makes it impossible to meet daily expenses. If they are homeowners, the beginning stages of foreclosure generally follow.

Many people are not aware of how soon after missing several mortgage payments that a foreclosure proceeding can begin. If you are one of those who are not clear on this, then here are some key points that may prove useful to you.

A foreclosure of a property may occur when a homeowner does not make the mortgage payments timely or fully.  In the case of foreclosure, timely does not mean that you were a few days late in sending in your payment.  Nor, does it mean that you missed the due date, but were able to make the payment prior to being 30 days late.  The issue of timeliness begins when are unable to make a payment, and then subsequently after 30 days, you do not have the means to catch-up by paying prior month’s payment well as the current month’s payment.

Although foreclosure laws vary by state, the general rule of thumb is that after you have missed three monthly payments in a row, the lender can issue you a letter Demand Letter or Notice to Accelerate.  When this happens, the borrower has broken the loan contract, and the lender has the legal right to take possession of the mortgaged property.  The Notice to Accelerate states that the lender is calling the entire mortgage due and payable.  In similar terms, the Demand Letter calls for all back monies, including fees, due and payable.  Both require that the homeowner comply within 30 days or the lender will begin foreclosure proceedings.

If the loan in question is a second mortgage, the lender holding the first mortgage can prevent the subordinate lender from foreclosing the property immediately.  If your lender is a private party, i.e. not a financial institution, you may or may not have more leeway in negotiating or postponing the step of foreclosure.  As laws differ between states, it is advisable to consult a real estate attorney to see if he or she can negotiate with your lender, particularly when it comes to the eviction process.

In some instances, the lender may postpone eviction, if you try to sell the property or can show hardship, such as a serious illness. In the case of a serious illness, state law may protect you from immediate eviction.  Therefore, consulting with an attorney can be very helpful in posting foreclosure and eviction.  Alternatively, without a legitimate hardship case, your lender may be open to the idea of allowing you the time to sell your property.  This is especially beneficial to the lender where the value of the home exceeds the mortgage balance. However, you must prove to your lender that your home is listed for sale at a reasonable asking price.  To do this, usually a copy of a real estate broker’s listing agreement will suffice.  The lender will generally agree to a specified and reasonable amount of time for the homeowner to find a buyer and complete the sale.

Sometimes, a lender will require that the buyer go directly through its legal department, rather than through the homeowner, especially when the mortgage is greater than the value of the home.  In this case, the steps of foreclosure are temporarily put on hold while the borrower diligently seeks a buyer.  When a home is sold for less than the remaining mortgage balance, it is sold as a short sale. A short sale means that the new buyer is paying less for the property than what is owed on the mortgage by the homeowner.  While this will affect the homeowner’s credit, it is not as harmful as having a foreclosure on record.

This entry was posted on Monday, October 26th, 2009 at 3:21 am and is filed under How Does Foreclosure Work, foreclosure laws, steps of foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.