Home should be a place of solace and security for everyone. When inflation, job loss, unforeseen medical events, or rising debt make staying on top of mortgage payments feel like an impossibility, it’s important to know what foreclosure means (and what steps you can take to avoid it.)
What is foreclosure?
Foreclosure is a legal process that begins when you do not make your mortgage payments. When the terms of a mortgage agreement are not upheld, the lender has a legal right to use your property as collateral and can repossess and sell the property. Foreclosure—the actual act of seizing a property—is usually the final step in a lengthy pre-foreclosure process.
Our HUD-certified counselors can begin a conversation about where you are today. Take the first step and call.
What does the foreclosure process look like?
You will want to research the foreclosure process in your state, but here is a general timeline:
- First missed payment—lender will contact you. It is important at this early stage to connect with a housing counselor who can help.
- Second missed payment—Lender is likely to inquire about missing payments. At this stage it’s important for you to be transparent and explain your financial situation. They may be able to negotiate a modified monthly payment plan and reach a resolution to prevent you falling further behind.
- Third missed payment—You receive a demand letter detailing the amount owed, with a 30-day repayment window to bring the mortgage current. Failure to pay the total could start foreclosure proceedings.
- Fourth missed payment—With no payment after 30 days you are referred to your lender’s attorneys and will incur all attorney fees.
- Sherriff’s or Public Trustee’s Sale—The attorney schedules a sale (the actual day of foreclosure.) You may be notified of the date via mail, a notice is taped to your door, and the sale may be advertised. You have until the date of the sale to make arrangements with your lender or pay the total which includes attorney fees.
- Redemption Period—After sale date, you may enter a redemption period. You are notified of their time frame on the same notice your state uses for the Sheriff’s or Trustee’s Sale.
How long does foreclosure take?
This varies state by state. The most recent national average for the foreclosure process is 857 days. According to a U.S. Foreclosure Market Report that examined properties foreclosed in the second quarter of 2021, there was wide variance, with states like Hawaii on the higher end (3,068 days) and Wyoming on the lower end (173 days.)
How long will a foreclosure impact my credit report?
A foreclosure appears on your credit report within one to two months and stays on the report for seven years (from the date of the first missed payment.) After seven years, the foreclosure will be removed from your report.
Our HUD-certified counselors can begin a conversation about where you are today. Take the first step and call.
What are the alternatives to foreclosure?
- Repayment Plan: Lender may agree to allow a regular monthly mortgage payment, plus an additional amount. Depending on your situation, a repayment plan can extend from two to 18 months, and you must often make a good faith payment up front. The amount of this payment varies but is usually the same as the monthly mortgage payment.
- Loan Modification: This is a written agreement that changes the original terms of the loan. In some cases, you can change the interest rate, the payment amount, or other factors. The changes in the loan terms can reduce the monthly payment amount. The bank or lender must agree, and modifications must be in writing.
- Forbearance: This option pauses monthly payments. At the end of the period, you must pay the debt either in a lump sum payment or a repayment plan. Forbearance may be a good option if you can resume making payments by a specific date and have income to support repayment.
- Refinancing: Refinancing lowers the mortgage payment by taking out a new loan, but this depends on the original terms of the loan and current interest rates. Typically, refinancing has added costs, such as application fees. It takes effort to shop around for the best rate.
What are my next steps when facing foreclosure?
It’s important for homeowners who are struggling to keep up or are concerned about foreclosure to get unbiased and nonjudgmental support. The sooner you take action when you’re at risk, the better.
With support from a trusted housing resource like the 995HOPE Hotline, you can discover what options work best for your situation. HUD-certified counselors will provide (at no cost to you) a review of your goals and a personalized plan to move forward.
