Foreclosure is the means by which your lender can legally repossess (take ownership) of your home from you if you aren’t living up to your end of the bargain – making your payments to the lender. Once the lender forecloses on your home, you must move out of the home or you will be evicted. 

In addition to losing your home, you could even owe the lender more money. That happens if the value of your home is less than the amount you owe on your mortgage loan. 

There are two possible types of foreclosures. One type is called a judicial foreclosure. The second is called a non-judicial foreclosure. In either case, your property would likely be auctioned to the highest bidder by the county sheriff or some other office of the court. Often the lender bids on the house at the auction, at the price of the debt owed. If no other buyer bids higher, the bank wins the property. 

Pre-foreclosure is the time period between the day you get a notice that the lender has filed a foreclosure lawsuit or a Notice of Default in the official public records and the actual date the property will be sold at a public foreclosure auction or trustee’s sale. 

When you get the notice, you still have the possibility of preventing the foreclosure. 

You can sell the property yourself or you can consider filing for bankruptcy to stop the foreclosure process. You may also be able to refinance or work out a payment plan. 

When your mortgage payment is between 35 and 45 days late, you will get a Borrower Information Packet from the bank that indicates the status of your mortgage. You will also get information about how you can “cure” the default; in other words, various options you have to get your payments back on track. 

In the packet there should be a toll-free number for calling your lender. You should also get a brochure titles “How to Avoid Foreclosure”, from HUD (U.S. Department of Housing and Urban Development). 

Don’t ignore this package or any other letter from your lender. Call or write your lender’s loss mitigation department as soon as possible. Be ready to explain your situation and provide any financial information they may request so they can help you. This can include your monthly income and expenses, your income (or lack of it), and other information related t your financial situation. 

You should stay in your home during the entire length of the pre-foreclosure process. You may not qualify for assistance if you leave your property. 

You can also contact a HUD-approved housing counseling agency. These agencies have information on services and programs offered by government agencies, as well as by private and community organizations, that could help you save your home. 

If you get a letter that states the entire balance of your loan is due and payable immediately, that is called “demand letter”. It’s sometimes called a “notice of acceleration”, because it is based on the acceleration clause of your mortgage contract. This clause describes the situations under which you are considered in default or late on your payments. If the clause does exist in your mortgage, it allows the lender to accelerate, or push forward, the date that your mortgage must be paid in full. 

If you don’t pay the loan in full by the date specified in your demand letter, the lender does have the right to foreclose on your mortgage, but it must comply with the requirements specified in your loan documents as well as other relevant laws in your state. If you get a demand letter, your fist call should be to seek advice from an attorney regarding your next steps. 

Once your mortgage payments are 90 days late, your loan will be considered in default status and the foreclosure process can begin. Before you get to that status, however, your loan will go into delinquent status. Your mortgage loan will be in delinquent status after you miss two scheduled monthly payments. 

Most lenders will transfer the servicing of your loan from the regular servicer to a special servicer once you’ve missed two payments. You will get a letter in the mail, as indicated before, which will give you an 800 number for contacting the servicer, who is often in the loss mitigation department. 

The special servicer is the one who will decide what the best workout strategy is for your loan. How cooperative you are with this special sericer can determine whether or not the servicer will work with you to delay the decision to foreclose on this loan and give you the opportunity to consider other workout strategies. 

In most states, you have from the time you receive notice that your mortgage is in default to five days prior to the foreclosure sale to reinstate your loan. The simplest way to reinstate your mortgage loan is to pay all past-due payments and other costs in full. 

If you are able to borrow money from a relative or friend to reinstate your loan, you should call your special servicer or other lender contact and ask for a “reinstatement statement”. This statement will list all past-due amounts and the total you must pay to reinstate your loan. 

If you can’t pay the amount due in full, you may be able to negotiate a payment arrangement for the past-due amounts and begin repaying your monthly payments. You may also be able to work out a Special Forbearance Agreement or a repayment plan whereby a portion of the past-due amount is added to your regular payment for a specified period of time until all past-due amounts are paid in full.