How Long Before a Foreclosure Takes Place?
For a homeowner, financial difficulties can trigger a nightmare scenario of missed mortgage payments, foreclosure and, ultimately, eviction. Alternatively, a prospective homebuyer may take advantage of a foreclosure sale---for the opportunity to acquire cheap real estate. In both cases, it is critical that you understand the timeline of the foreclosure process. The foreclosure process begins with mortgage default, and is consequently separated into separate stages of pre-foreclosure, the foreclosure auction, and "real estate owned" (REO).
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Mortgage Default
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Your full mortgage payment is likely to come due on the first of each month. The mortgage payment due date will also be attached to one 15-day grace period. You will be responsible for paying late fees if the lender has not received your mortgage payment by the time the grace period expires. After 30 days of missed payments, your mortgage falls into default status and the pre-foreclosure stage begins.
Pre-Foreclosure
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In the pre-foreclosure stage, you have defaulted on the mortgage, but the home has yet to be auctioned off. At this point, written and verbal communication between you and the lender should increase. During the pre-foreclosure stage you will receive a notice of default and a demand-for-payment letter in the mail.
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Strategy
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In pre-foreclosure, you generally have 150 days to negotiate a settlement for your mortgage through either a home sale or loan modification. When listing your home as a pre-foreclosure sale, a prospective buyer may expect to purchase the property at a small discount to market value. A pre-foreclosure sale may be further complicated, if you owe more on the mortgage than your home is actually worth. You would then consider a short sale---where the lender agrees to accept less money for the home than the outstanding mortgage balance due. If a sale does not happen in pre-foreclosure, you may be able to work with your lender to complete a loan modification. A loan modification is a permanent reduction in your home loan principal and interest rate, which should result in an affordable monthly mortgage payment.
Foreclosure Auction
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Your home will be auctioned off if you cannot come to a settlement with the mortgage lender during the pre-foreclosure stage. After 180 total days of missed payments, the lender will post a notice of sale within the local newspaper to announce the date and time for the foreclosure auction. The foreclosure auction is likely to occur within 30 days of the notice of sale. At the foreclosure auction, a prospective buyer may expect your home to sell for a deep discount of at least 20 percent off market value. You could be evicted from the home immediately after the foreclosure auction.
Real Estate Owned
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The bank reclaims your former home as "real estate owned" property if the property cannot be successfully auctioned off. For an REO, a prospective buyer will negotiate directly with the lender to acquire the home. A real estate owned property may sell at a 10 percent to 20 percent discount off market value.
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