Foreclosure is a process in which a lender attempts to recover the amount owed on an outstanding property loan once there is a default of payments. This is usually done by selling or taking ownership (repossession) of the property. The foreclosure process begins once the lender files a public notice of default (NOD), or in some states a lis pendens (LIS).
Once an NOD is filed, the property officially enters a grace period known as pre-foreclosure (length determined depending on state). Pre-foreclosure offers the borrower an opportunity to do several things before the property is repossessed and/or sold, and ultimately reported on their credit history.
Once the pre-foreclosure period has ended and the loan remains outstanding, the bank then repossess the property to secure the loan. Usually, the lender takes ownership of the property with the intent to re-sell.
Local foreclosure laws will differ from state to state. Some states follow non-judicial foreclosure procedures and others require the lender to sue the borrower before taking ownership of a property in default.
1. The First 30 Days
Your troubles actually begin as soon as you miss the first payment. Some lenders may not contact you until a second payment is missed, however the initial late payment and every succeeding delinquency will be reported on your credit. Each time you miss a payment, your credit score depresses and the lender tacks on late fees, which are in addition to your delinquent payment(s).
If you intend to repay missed payments, the sooner you contact your lender, the better. Most lenders will work with you as a measure of protecting their own investment, and are likely to reconsider the foreclosure process if you make efforts towards righting your delinquency.
Many lenders today offer several solutions (depending on the validated circumstances) for people who have fallen behind on their payments including:
2. 90 Days
As soon as you become 90 days delinquent in your payments, the bank can file an NOD. Some lenders may take longer to file depending on their individual procedures and/or your current work out progress. The lender will also send you a letter stating that the foreclosure process will initiate if you do not make good on your delinquent payments.
3. Another 90 Days
Again, foreclosure regulations vary from state to state. Once the NOD is filed, borrowers typically have another 90 days before the lender files a notice of sale (NOS) to repay the delinquent payments, late fees and any legal fees the lender has incurred. At this time, if you are able to repay the delinquency in full, some lenders will re-instate your loan while others may insist that you re-finance with another lender (which will be challenging due to negative results already on your credit report).
4. Your Final Options
If a loan modification or refinance isn't possible, your final options are as follows: