Understanding the Foreclosure Process
1 of 4 in Series: The Essentials of Foreclosure Self-Defense
Most people think that as soon as you receive a foreclosure notice, you’ve pretty much lost your home. This is simply not true. The foreclosure notice is the first step in a process that may take weeks or months to unfold. By understanding the foreclosure process, you can often gain more control over the outcome.
Receiving missed-payment notices
Although your bank expects to receive your monthly mortgage payment on or before the due date, it’s probably set up to cut you some slack. Most banks offer a ten-day grace period. As long as the bank receives payment within ten days of the due date, you’re okay. If the bank still hasn’t received payment, then it sends you a missed-payment notice, typically stating that you need to send in your payment ASAP to avoid further action.
As long as you send in your payment, you may not suffer much at this point. You may be required to pay a late fee, and the late payment could negatively affect your credit rating, but the bank is probably not going to initiate foreclosure proceedings.
Receiving a notice of default
If your payment is 30 days late or more, the bank may send you a notice of default (NOD), essentially telling you to pay up, or else. This NOD includes the property information, your name, the amount you’re delinquent, the number of days that you’re behind, and a statement indicating that you’re in default under the terms of the note and the mortgage you signed when you purchased your home.
The notice may also briefly explain that if the default is not cured immediately, the bank will be forced to take further measures, including foreclosure. Some notices are not that friendly and are, in fact, just a very coarse statement that you're in default, the bank has elected to accelerate the mortgage and note, and you have x days to cure the default.
Getting the dreaded foreclosure notice
If you don’t respond to your bank in a way that satisfies the bank, it eventually sends you a foreclosure notice, like the one shown here. The foreclosure notice informs you that the bank has initiated foreclosure proceedings and scheduled the sale of your home at auction. It also includes the amount you currently owe, the percentage interest, the name of your bank, and contact information for the bank’s attorney.
Losing your home at a foreclosure sale
In some jurisdictions, the foreclosure sale is the end of the line — as soon as someone submits the winning bid (or nobody bids and the bank gets the property by default), you lose all rights to your home and either have to move out or be evicted. In states that have a redemption period following the sale, you have one more chance to buy back your property.
At the foreclosure auction, the bank sets an opening bid at an amount that covers the balance you owe on your mortgage plus any interest and penalties that have accrued prior to the sale. If nobody enters a bid in excess of that amount, the bank obtains the property by default. Otherwise, the property goes to the high bidder.
You may choose to attend a foreclosure auction in your area to experience the process for yourself. Contact your county’s register of deeds and ask where the sales are held and the dates and times. If your home ends up on the auction block, attend the sale, so you can be sure that your house has been sold and you know who purchased it. This information can come in handy later if you have the resources to buy back your home or if something happened to delay the sale.