When Does Foreclosure Begin?
"The foreclosure process may begin once a mortgage borrower falls so far behind on her mortgage payments that she enters default," according to the Cornell University Law School. How far behind you have to be to enter default depends on state law and the terms of your mortgage agreement.
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Time Frame
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In some states, the law prevents a mortgage lender from declaring a default and initiating the foreclosure process until a certain amount of time has elapsed from the first partially or fully missed mortgage payment. In Arizona, for instance, the foreclosure process cannot begin for at least 90 days after the first missed payment. In most places, however, state law is silent on how soon after missing a partial or full payment the lender can start foreclosure. Often the loan documents themselves indicate when a loan is in default. It can be as little as 30 days after the first missed payment. When a mortgage can be declared in default, however, is not always the same thing as when it is actually declared in default. Lenders operate on their own timetable, undoubtedly influenced by backlogs and staffing issues.
Process
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How a borrower finds out she is in default also varies. A lot depends on what type of foreclosure process is used in the state in which the property is located. In most states, a non-judicial foreclosure process is commonly used. In this process, in some states, a notice of default is recorded on the property title and mailed to the borrower. In others, a notice of sale is mailed to the borrower. In a few states, such as Michigan, state law does not even require the lender to notify the owner; it must only publish notice of the foreclosure sale in a newspaper. In states in which the foreclosure process is judicial, a lawsuit must be filed. In these states, a summons and complaint are served or mailed to the borrower. Even in places where no notice to the borrower is required, however, it is highly unlikely the borrower won't know a foreclosure is in the works. Lenders generally begin calling delinquent borrowers 16 days after their first missed payment.
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Consequences
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What the initiation of a foreclosure process means also varies from state to state, lender to lender and loan to loan. In some states, with some lenders and with some loans, once a mortgage has been identified as being in default, the mortgage is "accelerated," meaning it all becomes due on the spot, instead of in monthly payments over a long period of time. In this circumstance, even if the borrower can pay the missed payments plus late fees, the lender does not have to accept them. It can choose to require the borrower to fully repay the entire loan balance or foreclose. In other states, with some lenders and some loans, the borrower has some period of time up until the foreclosure sale to repay only the missed payments plus late fees. This process is called loan reinstatement.
Modification
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A loan enters default when a borrower fails to live up to his obligation under the loan agreement to make timely payments on the loan. Lenders do not care why this occurs; however, under some circumstances the reason why a loan enters default, along with a set of other criteria, can result in a lender modifying a loan for a borrower. Federal programs such as HAMP (Home Affordable Modification Program) determine eligibility in part based on mortgage payments that exceed 31 percent of a borrower's income.
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References
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