Top 10 Things To Know About How Foreclosure Works
The foreclosure process isn’t as simple as the bank just showing up at your door. Read on for the top 10 things to know about how foreclosure works.
- Foreclosure begins within 30-90 days after you have missed a mortgage payment: The exact time period varies depending on a number of factors including how aggressively your lender wants to pursue the foreclosure, the foreclosure laws in your state and the number of foreclosures your lender is dealing with.
- Your lender will likely try to contact you during this time: Your lender will generally start calling you to collect the unpaid debt and to find out what is going on almost as soon as your mortgage payment is late. The calls may increase in frequency the longer the debt remains unpaid, as the lender tries to collect.
- You will likely receive a notice of default: In some states, this is a formal legal notice issued by the court that the bank obtains to start the foreclosure process. In other cases, the bank just sends out this notice themselves from their internal legal or collections departments.
- You may receive a demand letter requiring you to pay: This too may be court documents or may be from the lender. The notice will generally list the total amount you must pay to become current on your mortgage and stop the foreclosure process. It will normally contain a deadline- around 30 days- that you have in which to pay.
- If you don’t pay by the date in the demand letter, the bank can take legal action- If you ignore the demand letter or don’t pay it, the bank can then go to court and get a notice of foreclosure, actually foreclosing upon your house at that point.
- There are different legal rules for foreclosure depending on where you live: In some states, both judicial and non-judicial foreclosures are recognized. In some states, there are also more severe penalties for homeowners who do not pay their mortgages- called deficiency judgments. The time limit for foreclosure and the steps the bank has to take also differ from location to location.
- There are different types of foreclosure in some states– Some jurisdictions recognize both judicial foreclosure and non-judicial foreclosure. Judicial foreclosure occurs when the bank goes to court and gets a judgment of foreclosure. Non-judicial foreclosure occurs when there is a clause in your mortgage loan that allows the lender to automatically seize and sell the home (called a “power of sale” clause) without court intervention. If a power of sale clause exists, the lender will send you your default letter and if you don’t respond and pay, the home can automatically be sold at auction.
- Notice of the foreclosure will generally be printed in the newspaper: The notice will specify the address of the home and when the foreclosure auction is scheduled to occur.
- The bank will receive a judgment of foreclosure against you: In judicial foreclosures, the judgment is issued by the court. It shows up as a judgment against you on the public records section of your credit report, and is a matter of court record.
- A deficiency judgment may be pursued in some states: Some states allow banks to ensure they can recover all their money. The bank will seize a home to sell it in foreclosure. If they cannot generate enough money in the sale to cover all you owe them, including their fees and costs, they can sue you for the difference in court. This can result in a deficiency judgment against you and you will have to pay back that money. The court can even garnish your wages and/or place a lien on any existing property you own until you do pay.