Mortgage companies exercise the right to repossess property through foreclosure if the borrower fails to make monthly payments. Each state governs the specific foreclosure process for properties within its boundaries. The laws cover what types of notices and how the lender must present them to the borrowers. If the lender does not follow the state rules for serving foreclosure papers, the borrowers may be able to fight against the foreclosure in a court of law.
When a mortgage loan is originally approved, the lender requires the borrowers to sign a series of loan documents. One of the most important being the security instrument, also known as the mortgage or deed of trust. This document essentially outlines the terms of the loan and states that the property itself will be used as collateral for the underlying loan. By signing it, the borrowers agree that they understand the terms and will abide by them. The lender's definition of default and past-due payments should be set forth in this document.
Foreclosure can occur if the borrowers fail to meet the loan terms explained by the security instrument. Most commonly, defaulting on payments will result in foreclosure action. The lender regulates when it will begin foreclosure, usually after the loan is 90 days past due. Once the lender has decided to initiate foreclosure, it must adhere to the state laws. Most states require the lender to supply the borrowers with a notice at this point. Typically, it is referred to as a notice of default. This document can be served by a sheriff, marshall or someone else appointed by the court. Generally, these individuals try to serve the paper on the property, however state laws will decide where the action can take place. Other states do not require the paper to be personally served. The lender can mail the notice.
Over the course of a foreclosure, the lender may send several different notices to the borrowers. Often late payment notices will be sent, or the lender may call. After the notice of default is served or sent, other papers will follow. A notice of acceleration can be drafted to alert the borrowers that the loan payment is due in full. A notice of sale also will be sent or served to the borrowers when the foreclosure auction is scheduled.
When the lender schedules the foreclosure sale, it must provide notices. Some states require the lender to advertise the sale in a public newspaper for a certain period of time before it occurs. Other laws state that the notice of sale must be posted in a public location, such as the courthouse. Furthermore, some laws require a notice to be physically posted on the property itself.