If you've missed a house payment or two, no doubt you are wondering how soon your mortgage company can foreclose on your home. The short answer is, it takes 30 to 90 days to start foreclosure. But you may have considerably longer than that before you must vacate the property. More importantly, as soon as you realize you are not able to make your house payments, there are things you can do that might help you avoid foreclosure.
Most real estate loans specify that that the mortgage company may begin foreclosure proceedings 30 days after the first missed payment, but it's common for mortgage companies to wait 90 days. After one or two missed payments, your mortgage company will contact you regularly over several weeks to encourage you to pay. This period is called pre-foreclosure or the reinstatement period. During pre-foreclosure, options still exist for you to avoid formal foreclosure.
If you can sell your home during pre-foreclosure, the mortgage company may accept the sale price as repayment of the loan. This might save you from having a foreclosure appear on your credit history. If the sale price is less than the loan balance, the transaction is called a short sale. If your mortgage lender is convinced that you will be unable to sell your home, they may accept a deed in lieu of foreclosure. When your mortgage company accepts a deed in lieu of foreclosure, they still lose money on the sale of the property. However, they save the cost of formal foreclosure proceedings.
Your mortgage company may also offer to restructure your loan to reduce your payments. If your interest rate is above prime, it might be lowered. Or, the term of your loan might be extended. For the payments you miss in the interim, your mortgage company might add these to your loan balance, or set a repayment schedule. In both cases you're saved from having to make up the missed payments in a lump sum. FHA loans sometimes qualify for interest-free repayment of past due balances.
To take advantage of any options for avoiding foreclosure, you must communicate with your mortgage company as soon as you realize you're unable to make payments. Be forthright with your mortgage company about your financial circumstances and chances of your situation improving. Send a letter via certified mail explaining your hardship, and follow up frequently by phone and mail to keep your lender up to date.
There are agencies that offer to act as intermediaries in negotiating with mortgage companies, for a fee. However, most of the time there's no advantage to using a go-between. As evidence, the Federal Home Loan Mortgage Corporation (Freddie Mac) reports that foreclosing on a home costs the lender about $60,000, and on average the lender loses 20 to 25 percent of the loan value upon the sale of the foreclosed property. It makes sense that your lender is actually your best ally in avoiding foreclosure.
When attempts to avoid foreclosure fail, your mortgage company will issue a formal Notice of Default, and a Notice of Public Auction may be posted on your property. Court proceedings will take place depending upon requirements in your locality. The mortgage company's intent to foreclose will be announced publicly, in newspapers. Finally, your home will be sold at auction.
From your first missed payment, as many as six months might elapse while these events take place. Mortgage companies recommend you stay in your home as long as there's any chance to reinstate the mortgage. Technically, you don't have to vacate your home until you are served with an eviction notice, usually after the foreclosure sale. To protect your financial interests, always consult a real estate attorney and a tax specialist before making decisions regarding foreclosure.