When someone is unable to pay their mortgage, the lender can seize the property, evict the homeowner, and sell the house. This process is called foreclosure. This doesn’t happen overnight. The whole process will take some time and generally goes through the following steps:
1. After you miss one month of mortgage fees, you will receive an official notice of default (NOD) letter. This contains information on the amount you owe and how to submit your late payment. Sometimes you will receive a phone call as notification.
2. You will then enter “pre-foreclosure”, what is otherwise known as a grace period. During this time, if you still fail to pay after 1-4 months (depending on your local regulations), you can try to arrange with a repayment strategy with your lender.
3. If you still cannot meet the payment deadline for the outstanding amount you owe after pre-foreclosure, your mortgagor automatically gains the title to your property.
4. Your home will be sold at a foreclosure auction. If it doesn’t sell, it becomes real estate owned (REO) or bank-owned property.
The type of foreclosure process will depend on which state you reside in and the local laws followed there. The most common ones are judicial and statutory or power of sale. The first kind is when lenders have to go through the courts to gain permission to proceed with the process of gaining ownership of a borrower’s property. It can take as long as 700 days. The latter is a faster process because mortgagors have the power of sale, meaning they can sell your home even without going through judicial proceedings.
There are several reasons why somebody is unable to keep up with their home loan payments. It could be medical bills, unexpected unemployment, divorce, death, and other hardships. If you find yourself in such a situation, it is best to talk to your lender as soon as possible. He/she may be able to present a variety of options to avoid foreclosure, such as refinancing or a loan modification.