If you miss several mortgage payments, you will be at risk of losing your home through a foreclosure sale. If you receive a notice of foreclosure, it’s a good idea to take steps to save your home. Learn more about foreclosures, what happens when you receive a foreclosure notice, and what steps you can take to save your home from a foreclosure sale.
Written by Attorney Kimberly Berson.
Updated October 8, 2021
Many homeowners struggle to make their monthly mortgage payments on their home loans. An unexpected financial hardship can quickly cause you to miss several mortgage payments. Homeowners who miss mortgage payments risk foreclosure. Fortunately, help is available if you are behind in making your mortgage payments. This article outlines three important things you need to know:
What happens if you fall behind on mortgage payments to your lender
What a foreclosure notice means
How to avoid a foreclosure
Understanding a Foreclosure Notice
A mortgage is a secured debt that allows a lender to sell a home if a borrower fails to make their monthly mortgage payments. Homeowners who fall behind in making mortgage payments won’t lose their homes right away. That’s because lenders must follow foreclosure laws. These laws, which vary by state, list the steps lenders must take before a home can be sold. In states that allow nonjudicial foreclosures, lenders can sell property without a court order. Other states have judicial foreclosure laws whereby a court order is required before a lender can sell a borrower’s residence.
What Is a Foreclosure Notice?
A foreclosure notice is a warning that the lender is starting the foreclosure process. Foreclosure is the procedure the lender must follow to sell a home at a public auction. After the property is sold, the lender will pay off the home loan with the proceeds from the sale.
Missing one payment won’t trigger a foreclosure notice. If you are delinquent in your mortgage payments for more than 45 days, you will first receive a written notice of default. This notice will explain that you need to pay any missed payments. It may also explain your loss mitigation options. Loss mitigation is a process whereby borrowers and lenders work out an arrangement to avoid foreclosure.
If you don’t make up the missed mortgage payments, you will probably receive a written notice of foreclosure from the mortgage company. In most cases, mortgage lenders have to wait until you are at least 120 days delinquent on your mortgage payments to start the foreclosure process.
In judicial foreclosure states, the lender will serve you with a summons and complaint. Answering the summons and complaint will allow you to raise any defenses that you might have. Failing to answer the complaint will probably result in a judgment against you. This will allow the mortgage company to schedule a foreclosure sale of your home at a public auction.
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Steps of a Nonjudicial Foreclosure
Some states permit nonjudicial foreclosure processes. Nonjudicial foreclosures have fewer steps and are quicker. When a borrower misses mortgage payments, the servicer will send notice of the breach. The lender may be required to send the breach letter when the borrower is 30 days behind. In some states, the lender is required to send a pre-foreclosure notice. Federal law usually requires the mortgage servicer to wait at least 120 days before it can start a nonjudicial foreclosure proceeding. They must also allow the borrower an opportunity to seek loss mitigation.
A nonjudicial foreclosure action begins when a mortgage servicer files a notice of default with the county recorder. State law will determine how much time the lender has to wait between filing the notice of default and scheduling the foreclosure sale.
If you don’t make up the missed payments by the deadline provided in the notice of default, the lender will file a notice of sale. This notice will include the date, time, and place of the foreclosure auction. It will be recorded with the county clerk and is typically published in a newspaper. The borrower will also receive notice of the sale by mail.
If the mortgage lender provided proper notice of the default and notice of the sale, an auction will go forward. Typically, you will be given time to reinstate your loan before the foreclosure sale. Reinstatement of your loan means you pay back what is owed, plus any fees, by a deadline before the foreclosure sale.
At the foreclosure sale, the lender or a third party may purchase the property. The real estate will be sold to the highest bidder. If the lender purchases the foreclosed property, it will hire a real estate agent to sell it. If you don’t leave your home after it is sold at a foreclosure sale, the new buyer will send you an eviction notice.
In any foreclosure, there is a possibility that the foreclosed property will be sold for less than the balance due on the mortgage loan. If that happens, the lender can seek a deficiency judgment against the borrower, which requires the borrower to pay the difference between the mortgage and the sale of the property.
What Can You Do About a Foreclosure Notice?
Homeowners have a few options to avoid a foreclosure sale.
Sell the property. A homeowner can try to sell the home before the foreclosure sale. A real estate agent can help you sell your home. If the market value of the real property is less than the mortgage balance, the homeowner would need lender approval to sell the home. This is called a short sale. The homeowner may still be responsible for a deficiency in a short sale.
Modify your home loan. A loan modification could allow a borrower to add the missed mortgage payments to the loan. A loan modification can change the term (length) of the loan and the interest rate. By doing so, it may make your monthly mortgage payments more affordable.
Refinance your loan. A refinance replaces the old loan with a new loan. The new loan usually has more favorable terms, such as a lower interest rate. Refinancing is typically not available to borrowers who have missed mortgage payments.
Pay your missed mortgage payments or ask for a forbearance. If you can make up the mortgage payments that you owe, you won’t face foreclosure. If you run into difficulty making your mortgage payments, you might want to explore a forbearance agreement. In a forbearance agreement, the lender agrees to let the borrower stop making mortgage payments temporarily. The lender also agrees to not foreclose during this time. But, after this time expires, the borrower is required to make up the missed mortgage payments.
Consider a deed in lieu of foreclosure. The above options allow you to keep your home. With a deed in lieu of foreclosure, you’ll avoid foreclosure but lose your home by voluntarily transferring the title to the lender.
Consider filing for bankruptcy. Bankruptcy will stop a foreclosure proceeding in most cases. It also may help you catch up on your mortgage payments. Most people file a Chapter 7 or a Chapter 13. Chapter 7 is a liquidation proceeding whereby assets that can’t be protected may be sold by a trustee. This type of bankruptcy won’t help you make up your missed mortgage payments, but it can temporarily stop the foreclosure proceeding through an automatic stay.
A Chapter 13 case involves a repayment plan. You can pay back your missed mortgage payments in the plan over three to five years. You will also need to keep up with the mortgage payments that are due after you file for bankruptcy. Loss mitigation may be an option in bankruptcy as well.
Avoiding foreclosure is beneficial because foreclosure will negatively impact your credit report and lower your credit score. You may be liable to the lender after foreclosure if the lender gets a deficiency judgment against you. Also, foreclosure is stressful for homeowners. Taking advantage of the available options to avoid foreclosure can reduce the tension of a stressful situation.
Credit After Foreclosure
If a foreclosure is on your credit report, this doesn’t mean that you won't be able to find a place to rent or you'll never be a homeowner again. You can repair your credit. If you are patient, your credit will recover. A lender will also look at your income, down payment, and other financial information when determining whether to give you a loan. Even if you have filed for Chapter 7 bankruptcy, there are ways you can get a mortgage in the future.
If you miss several mortgage payments, you will be at risk of losing your home through a foreclosure sale. If you receive a notice of foreclosure, it’s a good idea to take steps to save your home. Contacting the loss mitigation department of the mortgage company to discuss your options is a smart move. Loan modification, refinancing, selling your home, a short sale, or a deed in lieu of foreclosure can help you avoid foreclosure. In some cases, filing for bankruptcy is a great tool to prevent foreclosure and get back on track with your mortgage payments. The most important thing is to take action and explore your options to avoid the foreclosure process, when possible.