Foreclosure Process

The foreclosure process is slightly different in every state. But certain aspects of how foreclosures work are universal.

This article describes foreclosure procedures under state laws and federal laws. It includes tips on what you can do to stop or slow home foreclosure because of missed mortgage payments.

No matter where you are in the pre-foreclosure or foreclosure process, you may benefit from legal advice. A foreclosure attorney can represent you and offer guidance during this stressful time.

Missed Payments Start the Pre-Foreclosure Legal Process

All types of foreclosure situations begin when a homeowner or borrower misses a mortgage payment. When you stop making payments on your home loan, your credit score may drop within a few months. Not long after, continued failure to pay your mortgage loan will start the default process.

The Homeowner Receives a Notice

Your lender will send you a notice of default that says you’re behind on payments. This is a good time to call the bank to explain a temporary hardship and ask for forbearance.

Review Your Rights and Protections

The foreclosure process gets largely determined through state laws. But federal laws also provide regulations and limits intended to protect homeowners.

The federal Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB) to:

• Monitor and regulate consumer financial products
• Ensure fairness in how lenders offer and service mortgages

The CFPB has procedures to provide struggling homeowners better access to foreclosure avoidance tools. These regulations require loan servicers to make good faith efforts to contact homeowners when they miss payments before initiating a foreclosure.

Consider Bankruptcy

If your financial hardship isn’t temporary, you may also want to consider bankruptcy. A bankruptcy filing automatically stays (or “puts on hold”) a foreclosure proceeding.

In some bankruptcy cases involving the discharge of all debts, a mortgage holder may:

• Foreclose on the property (if there is no significant equity)
• Sell it through bankruptcy court

Consider Ways To Continue Homeownership Without Bankruptcy

If bankruptcy is not an option, you can still take action to prevent your bank from foreclosing. In pre-foreclosure, your lender will give you a foreclosure notice about your legal rights and impending consequences of non-payment. You can try to negotiate with the lender to save your home.

Some foreclosure alternatives include:

• Loan modification: Your bank might offer a repayment plan that reduces your monthly payments and allows you to catch up.
• Deed in lieu of foreclosure: The bank might accept the deed to your home in exchange for debt forgiveness.
• Short sale: The bank might let you sell your home at a loss in exchange for forgiving all your debt.
• Refinance: Your bank (or even another lender) might be willing to re-negotiate your debt for a lower interest rate and monthly payment.

If a bank forecloses, it runs the risk that it can’t sell your foreclosed property. The property could then become Real Estate Owned (REO). That means the bank becomes the owner of your unsold property when it forecloses on its deed of trust or promissory note. Since banks are in the business of lending money (and not owning real estate), they’d rather avoid REOs. Their loss mitigation process mandates that they try to help you save your home where possible.

The Lender Starts Foreclosure

If you’re still unable to resolve your loan default after speaking with your bank, the matter will escalate. Depending on your state laws, the lender either:

• Files with the court (judicial foreclosure)
• Proceeds with a nonjudicial foreclosure through a contractual power of sale clause

In a judicial scenario, the court will review the mortgage documents and ensure the lender followed the proper legal process. Assuming there weren’t any violations and the bank has a valid lien, the court will clear a foreclosure sale. You will get a notice of sale from your bank.

Extra Step for Military Homeowners

If you’re a member of the armed forces, you might have recourse. The federal Soldier and Sailors Relief Act allows active duty military service members to set aside a default judgment leading to a foreclosure.

If a mortgage holder files a foreclosure action against a borrower who fails to answer the legal complaint, they must file an affidavit with the court to prove the homeowner is not on active duty in the military. If the borrower can prove that their service is impacting their ability to pay the mortgage, the lender may stay the foreclosure for the length of the borrower’s service.

The Home Is Put Up for Sale

To sell your property, the mortgage lender will hold a foreclosure auction. Your home will go to the highest bidder at the public auction.

Some states recognize a right of redemption. In those jurisdictions, there’s a redemption period to reclaim your home before the sale date.

Post-Sale Eviction and Deficiency Judgment

If your home gets sold, the new owner may begin eviction proceedings if you still live in the property after the sale or repossession. You may have options to delay or stop the eviction. 

In states that allow it, your lender can also come after you with a deficiency judgment if your foreclosed property sold for less than the amount you owed to the bank. A deficiency judgment can be difficult to afford if you’re already struggling financially, which is why some states have laws limiting this practice.

Get a Legal Advocate on Your Side

Learning about foreclosure laws and the general procedures will help you prepare. If you’re facing foreclosure, an experienced attorney near you can help.