Despite efforts to curb the wave of foreclosures sweeping the country, many homeowners are still in danger of losing their homes to foreclosure. Understanding how the foreclosure process works can help you avoid it if you end up having trouble paying your mortgage. There are a number of steps along the way where you can intervene to stop the process and knowledge is power.

The process of foreclosing on a property varies somewhat from state to state, but the general steps are mostly the same. Here’s how a foreclosure typically works:

Late Payment(s)
If you miss a payment on your mortgage (30 days late), your mortgage will technically go into pre-foreclosure and you will get a hit on your credit. You will probably get a call from your lender or a notice regarding the missed payment. At this point, your lender may be willing to negotiate a forbearance or repayment plan with you to either suspend your mortgage payment temporarily or make up for it incrementally by spreading it out over other payments. Alternatively, you may be able to do a loan modification or refinance into better terms to make your payment more affordable.

It’s important that you communicate with your lender as soon as you miss a payment so that you can work out an arrangement to get your mortgage loan back on track. If you continue to miss payments without talking to your lender, you will get a 60-day past due notice and likely a Notice to Accelerate. Once you get Notice to Accelerate, you can no longer make partial payments to get your loan current. You will have to pay the entire delinquent amount plus late fees. If you do not do so by the date on the notice, the lender will initiate the foreclosure and legal fees will be tacked onto your tab.

Demand Letter
If the foreclosure is initiated, you will receive a formal demand letter from an attorney for the lender. This letter informs you that if your loan is not made current a foreclosure will be filed with the courts. You can still stop the foreclosure by paying what is owed.

Notice of Default
If you don’t respond to the demand letter, a foreclosure will be filed with the court and you will receive a Notice of Default (NOD) by certified mail that outlines how much you owe and remedies to reinstate the mortgage. The NOD is also announced in the newspaper. This usually occurs when you have missed mortgage payments for 90 days. You typically have three months pay back your debt or work out a plan with your lender.

Notice of Sale
If you fail to respond to the NOD or cannot repay your debt within the specified period, your bank will file a Notice of Sale that sets a date (usually around 20 days later) for the auction of your home. At this point you may still be able to reinstate your mortgage if you come up with the money you owe, but it depends on where you live and your lender’s cooperation.

Public Auction
When your home comes up for auction the bank will set the opening bid at the amount it is owed and open it up to the highest bidder. If no bids are made at the opening bid, the home will become a bank-owed (REO) home and the lender will put it up for sale on the market.

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