What Happens When Foreclosure Takes Place?
Foreclosure isn't so much an event as it is a process--one that starts with you missing mortgage payments and ends with the lender taking your house and selling it. Timelines and specific procedures vary according to state laws, but the general outline is the same. Foreclosure doesn't happen overnight, and there are several points along the way at which you can stop the process and hold onto your home.
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Missed Payments
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Lenders typically begin formal foreclosure actions once you've missed three consecutive monthly payments. A missed mortgage payment is not the same as a late payment. A late payment is simply one that the lender receives after the due date, and most lenders even have a grace period of 10 to 15 days during which you can pay without penalty. A missed payment, on the other hand, is one that you don't make at all. Once a payment is 30 days late, it's missed. As you miss payments, you can expect to get letters and phone calls from your lender. Don't ignore them. At this point, it may be possible to work out a payment plan, but you have to communicate with your lender.
Notice of Default
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After the third missed payment, you'll get a "notice of default" from your lender--sometimes called a "demand letter" or a "notice to accelerate." This letter tells you how much you now owe, including interest, penalties and collection costs, and gives you a deadline to pay it, often within 30 days. You can stop the process right now by paying up or, if your lender is amenable, working out an alternative payment schedule.
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Notice of Sale
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When time runs out for you to pay up according to the default notice, the lender begins the actual foreclosure. Depending on your state law and the specifics of your home loan, the lender may have to get a court order allowing it to seize and sell the house, or it may already have that authority under a "power of sale" clause in the loan papers. Either way, once the lender has approval to foreclose, it schedules a date for your home to be auctioned off. You should receive a notice telling you when the sale date is, and a notice may also be posted on your door. By law, the sale usually has to be publicized, usually through an ad in a local newspaper.
Sale and Eviction
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You may still be able to work out an arrangement with your lender up until the sale. If you can't, the home goes up for auction, and the highest bidder gets it. If no one bids on the house, or no one bids high enough, the home becomes the lender's property, referred to as an REO property, for "real estate-owned" The sale is the actual foreclosure. Once the sale occurs, you'll usually have some time to move out. If you don't, the sheriff will come and kick you out.
Redemption
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Most states allow you to halt the process at any time by paying off the mortgage in full, if you can somehow come up with the money. This is called "right of redemption." Sometimes the redemption period even extends past the date of the sale; if so, the notice of the sale will tell you how long you have to redeem the mortgage.
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