The good news is that if you’re in danger of missing a mortgage payment, you don’t have to worry about foreclosure just yet. Legally, it takes at least 120 days before the foreclosure process begins, and you can often stop it from happening at all, if you take action now and speak to your mortgage lender.
You may be worried about approaching them, given how hard you worked to get a mortgage in the first place; but acting now is the best thing to do if you want to avoid foreclosure. If you bury your head in the sand, and ignore the problem, then you could find yourself on the path to foreclosure.
What Happens if You Miss A Mortgage Payment?
No-one intends to miss a mortgage payment, but there are times when life throws you a curve ball and debt starts to creep up on you. If this starts to happen, you need to manage debt This includes sorting out your mortgage payments. Don’t forget that mortgage companies want to get their money without a messy foreclosure process if possible; it’s more cost effective. This means that they want to come to an arrangement with you.
If you need an extension, you can often get one without penalty. It’s common to be granted a 15 day grace period. If you pay within this time, you’re in the clear. If you fail to pay, and then miss another payment, things get more complicated. Late fees can be added to the amount you owe and once you miss the second payment you’re in default.
What Happens if You Miss a Second Mortgage Payment?
Once you miss a second mortgage payment, you’re likely to see a change in the mortgage servicer. They will normally become more assertive in the way they deal with you. This can be a frightening situation to deal with, but you can still avoid foreclosure if you explain what you’re doing to handle your monthly payment issues. You may be able to reach an agreement with the mortgage lender.
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What Happens if You Don’t Pay Your Mortgage for 90 Days?
If you don’t come to an agreement with your mortgage lender, and you miss three mortgage payments, you will not have paid anything off your mortgage debt for 90 days. This is a serious situation to be in. You will receive a letter from the mortgage lender telling you that you’re delinquent in your mortgage payments and have 30 days to bring your account up to date.
If you want to stay in your home, you need to speak to the lender in order to try and avoid foreclosure proceedings. They will normally expect full payment of the money that’s owed but you may still be able to reach a payment arrangement.
What Happens After 120 Days With No Mortgage Payments?
Once the 30 day period mentioned in the letter from the lender has ended, if there has been no payment made and no agreement reached, the foreclosure process starts. The mortgage lender wants the money that’s owed and it’s now 120 days with no monthly payments made. That’s four monthly mortgage payments missed before foreclosure begins.
It’s worth noting that state laws vary when it comes to foreclosure. In some states, home loan providers are required to meet with borrowers before the lender files for foreclosure proceedings to start. This is an attempt for an agreement to be reached that can avoid foreclosure. If you face the possibility of foreclosure, you need to research the law in your state.
The Foreclosure Process
The foreclosure process in the US is different from the UK foreclosure process and from the foreclosure process in some Canadian provinces. In the UK, foreclosure is uncommon. Repossession of your home is most common if you don’t pay your mortgage. This means that the lender repossesses the property, sells it and takes any money owing with the remainder being paid to you. This is similar to the Power of Sale process which is used in Newfoundland, Prince Edward Island, New Brunswick and Ontario in Canada. Both of these processes tend to be quicker than the foreclosure process in the US. This is especially true of Power of Sale as no court intervention is required.
If you’re subject to foreclosure in the US, you’ll receive a “notice of default” at the start of the process. You typically have 90 more days before you’re out on the street at this point. However, the length of time can vary according to state law.
After the 90 days, you’ll receive a “trustee’s sale notice” which tells you that your home is being sold in order to pay your mortgage debt. The sale is also advertised in the local press. If the property sells for less than the amount of the debt, this is known as a “short sale”. The lender takes as much as they can from the sale and you lose your home.
Sometimes, the lender simply takes ownership of the property and it’s not sold. If this happens, you will simply be evicted from your home and all belongings left in the property will be stored, and only released after the payment of a fee.
Obviously, that is a terrible outcome. So how do you avoid it?
Investing in real estate is a good idea, but it can cause problems if you don’t manage money well or you hit an unexpected crisis in life. Don’t forget that mortgage problems can affect your credit score as well as leading to foreclosure, in the worst case scenario. Always speak to your mortgage lender as soon as you know you’re going to have problems paying. You will usually be able to work out a solution and stop the foreclosure process from happening.
Thanks for sharing. I’ve thankfully never learned about these timelines. Three months is not a lot of time. It’s amazing how close so many of us are to losing our homes. We have a big emergency fund that should see us through rough times, but we didn’t build it up over night.
When the home actually goes on the auction block is very dependent upon how backed up the banks are at the time….I knew someone that couldn’t afford their home anymore and lived in it for well over a year (payment free) before it finally was auctioned and they got kicked out.
Kevin,
I liked the way you laid out the foreclosure process in a easy to follow manner. In truth, I never had a clear picture of the procedure until now.
I also liked your blog. It answers a lot of financial questions in the same clear way.
When going for the purchase of a home loan or a property, it is important to select the right home loan depends on your financial backup and budget. Also, it is important to get ready for the expenses like medical, divorce, home maintenance, etc. from starting stage itself, because knowing these things in advance will definitely assist you to avoid financial and other mortgage related issues in the future.
That timeline is close to accurate for about 50% of the United States. Some states can process a foreclosure in a month, others can take up to a year to foreclose. Check the statutes for your state to get accurate information regarding the minimum timeline your lender must follow.
I missed one payment and received a default notice.