The Foreclosure Process: Homeowner Perspective

As a homeowner, the events that lead up to your foreclosure and eviction can be especially traumatic. The foreclosure process begins with mortgage default. From there, the process is divided into the three separate stages of pre-foreclosure, foreclosure auction, and real estate owned. When facing foreclosure, it is important for you to become familiar with how the foreclosure process works, so that you can take steps to either save your home or avoid further damage to your credit report.

The Foreclosure Process: Mortgage Default

Your full mortgage payment is likely to come due on the first of each month. The payment due date will also precede one 15-day grace period. The lender will tack on late fees to your account, if the grace period comes and goes without you submitting your full mortgage payment. After 30 days of missed payments, your mortgage falls into default and the lender will report your status to the major credit bureaus. At that point the foreclosure process begins with the pre-foreclosure stage.

The Foreclosure Process: Pre-Foreclosure

The pre-foreclosure stage generally lasts for a total of 150 days. In pre-foreclosure, your mortgage has fallen into default, but your home has yet to be seized and auctioned off. At this time, you can expect communications between yourself and lender representatives to increase. Via telephone, you will field calls from representatives, who will seek out an explanation for your missed payments. Via U.S. mail, you will receive a notice of default and demand letter, which both order you to take steps to immediately bring your home loan back current.

The Foreclosure Process: Strategy

In pre-foreclosure, you may attempt to negotiate a loan modification through the lender to save your home. The U.S. Department of Housing and Urban Development describes a loan modification as a permanent reduction in mortgage principal and interest that should result in an affordable monthly payment. In terms of affordability, you should target a loan modification that translates into a monthly payment that is less than 30 percent of your gross income. Before approving the loan modification, your lender will analyze your financial documents to verify that it is virtually impossible for you to meet current mortgage terms, as is.

Be advised, however, that the bank is under no obligation to approve any loan modification. To open up your options, you should therefore put the home up for sale. A prospective buyer may purchase the home for a 10 percent discount to market value, if the property is in need of minor repairs because you lack the funds for upkeep. The scenario may be further complicated if you owe more on the home than it is actually worth. You would then be forced into a short sale, where the bank must agree to accept less cash on the property than its outstanding mortgage balance due.

The Foreclosure Process: Foreclosure Auction and Eviction

The bank will publish a notice of sale in the local newspaper after 180 days of missed mortgage payments with no settlement. The notice of sale announces a time, date, and location for your home to be auctioned off. The foreclosure auction typically falls within 30 days of the notice of sale. The bank will repossess the home as real estate owned, if a buyer does not emerge with a winning bid on the property. After the foreclosure auction, the bank or the home's new private owner can file a 30-day notice to quit and eviction lawsuit to have you vacate the premises. The local sheriff will be called out to remove you by force -- if you refuse to cooperate.

The Foreclosure Process, Sources:

RealtyTrac: Property Foreclosure Overview and Foreclosure Process

U.S. Department of Housing and Urban Development: Loan Modification FAQs

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