Understanding how the mortgage foreclosure process works will help you know what expect and to appreciate the importance of acting quickly when your home is at risk. The longer you wait you act, the fewer options you have for avoiding foreclosure, and the more money you will owe your mortgage company.
The mortgage foreclosure process is determined by the laws of the state in which the property is located. It's important to understand whether foreclosures in your state are judicial or statutory. (You'll find a helpful link at the bottom of the page to investigate this issue.)
If your state law provides for judicial foreclosures, your lender must get the court’s permission to take back your home. Therefore, the lender must sue you and you’ll have to attend at least one court hearing. From start to finish, completing a judicial foreclosure can take as long as a year.
If you live in a state where foreclosures are statutory, the process will move along much more quickly because mortgage companies don’t have to sue homeowners to get the court’s permission to take their homes. All that your mortgage company must do to take your home is file some paperwork with the court, purchase an ad about your past due mortgage from your local newspaper, and send you all of the required notifications. Therefore, once the foreclosure process begins, it could be over in just a couple months.
Although the nature of your state’s foreclosure law establishes the process for taking back your home, the timeline for foreclosing on your property is also affected by the foreclosure policies of your mortgage company. Some companies are very aggressive about foreclosures and others are inclined to give home owners more time to try to avoid the loss of their home. Still others drag their feet and the mortgage foreclosure process seems to fall into limbo.
Despite the differences between judicial and a statutory foreclosures, once you’ve fallen behind on your mortgage, the foreclosure process will likely follow a fairly predictable path. For example, during the first several months after you’ve fallen behind on your mortgage, you’ll receive a series of written notices and maybe some calls as well asking you to get caught up. The letters will get increasingly demanding as time goes on if you don’t pay your mortgage arrearage (the past due amount). Now is the time to try to find a way to get caught up on your loan (if you can) and to figure out how you can make all of your future mortgage payments on time.
Eventually, unless you pay the arrearage or unless you and your mortgage company reach an agreement about what you’ll do to hold on to your home --- usually once your loan is 90 days past due, but it could be sooner or later -- your mortgage company will turn over your mortgage to an attorney. The attorney will send you at least one notice telling you exactly how much you must pay in order to avoid having the foreclosure process move forward. At this point you will begin incurring attorney fees that you will owe the mortgage company.
If you still do not pay your mortgage arrearage, you’ll receive a new notice, which is called a "Notice of Acceleration" in most states. Once this happens it will be much more difficult for you to avoid the loss of your home because now you’ll owe in full, not just the past due amount on your loan, but it's entire outstanding loan balance! The notice will tell you when and where your home will be sold if you don’t pay that balance.
Important: If you have received a notice of acceleration, make sure you talk with a foreclosure attorney right away so he or she can explain the mortgage foreclosure process in your state, and discuss your rights and options.
Sometime after you’ve received the acceleration notice, your home will be sold in a public auction, assuming you’ve not worked out a way to avoid it. You’ll be sent a notice telling you when and where the sale will take place so you can attend the auction and try to buy your home; however, you’ll have to pay cash for it.
If your home is auctioned off for less than what you owe to your mortgage company, it can try to collect the deficiency from you, which is the difference between the loan’s outstanding balance (including late fees and the mortgage company’s attorney fees and expenses) and the amount of the winning bid. If you don’t pay the deficiency, you may be sued for the money. (Note, in some states, mortgages are "non-recourse" loans, which means the lender cannot go after you to collect the deficiency. An attorney who knows foreclosure laws can tell you what the laws are in your state.)
Depending on your state there may a period of time -- the redemption period -- immediately after the sale of your home during which you can buy back your home. The length of the redemption period ranges from as long as a year to as little as 10 days. It varies by state.
After your home as been auctioned off and assuming you don’t purchase it during your state’s redemption period, a sheriff, marshall or constable will serve you with an official eviction notice telling you when you and all of your belongings must be out of the house.