Notice of Default: NOW WHAT?
What Happens in a Foreclosure

For many homeowners, the word "foreclosure" is very foreboding. It basically means that they will be forced to move out of their home, and it is without a doubt that anyone would purchase a house with the intent of losing it due to their inability to pay their mortgage. Unfortunately, this is happening more and more due to events beyond most homeowners' control. Many borrowers simply do not understand the foreclosure process, or the rights afforded them under state and federal laws. The foreclosure process varies in every state and it is important that homeowners who may be facing foreclosure understand their local laws governing the process. The process varies mostly with regard to the reinstatement process, trustee sale timeline, and homeowner's rights of recovery and redemption.

The actual foreclosure procedures vary little no matter where you live. Once you are in default of your loan agreement after becoming delinquent in your payments, the lender may begin the steps to recover their assets. This usually begins with the lender contacting the homeowner to ascertain why the mortgage payment has not been made (typically within 30 days of becoming delinquent). If the homeowner does not make arrangements or agree to make payments current, then the lender may take steps necessary to begin the foreclosure process.

This does not mean that the lender can take away your home simply because you are late on your mortgage payments. As discussed earlier, many states have enacted laws and provisions that lenders must follow to try and avoid foreclosure prior to filing an NOD (Notice of Default). Keeping in mind that processes may vary from state to state, a general timeline typically follows this example:

Day 1: Homeowner misses scheduled payment.

Day 16-30: Late charge is assessed on mortgage payment by lender. Lender attempts to contact homeowner to ascertain if payment was made, or find out why payment has not been made.

Day 45-60: Lender sends a 'breach' or 'demand' letter legally advising the homeowner of their contractual default. The letter will also typically include details regarding the delinquent account, late fees, and mortgage payment(s) owed. Lender may at this time attempt to initiate loan modification for qualified homeowners.

Day 60-90: Lender sends notice of default (NOD) via certified mail to homeowner. The NOD will provide a time period to which the homeowner must pay all past due amounts and collection costs and fees (where applicable) to bring loan current.

Day 90-105: Lender refers loan to loss mitigation and/or foreclosure department. In most cases, lender may attempt to obtain information from homeowner to see if they qualify for a loan modification if they have not done so previously. They may also attempt a loan workout or repayment plan with the homeowner to bring loan current. Or, they will refer your account to their foreclosure or legal department to begin initiating foreclosure proceedings.

Day 150-400: A Notice of Trustee sale is filed and the home is scheduled to be sold at auction. Time range for auction sale and homeowner right-of-redemption varies from state to state. Typically the lender will set the bidding price at the loan amount. If the home is not sold at auction the lender may legally repossess the home and it becomes a REO (Real Estate Owned) property.

The lender then may make another attempt to sell the home at auction or will list it for sale through an authorized real estate brokerage.

You may verify detailed foreclosure procedures for your state online by going to http://foreclosurelaw.org.

After the home is foreclosed: If still residing in the home, the homeowner has now become a tenant. Whether the bank now owns the property as Real Estate Owned, or if it was sold at auction, the new owner reserves the right to legally evict the former homeowner unless other written agreements are in place. As the former homeowner is considered a tenant, they are now an unlawful detainer; which means that they are in possession of real property without a right to do so. Such possession entitles the new owner to file a lawsuit for unlawful detainer, asking for possession by a court order through a legal action to evict the occupants. A landlord (or new owner) CANNOT forcibly evict a tenant without proper notice. The tenant must be served with court documents and have the right to appeal. In most cases tenant appeals will only prolong the eviction process for a short time unless they can somehow convince the court of their legal right to possession which, by the fact that they are no longer the owners of the property and have no other tenant agreement in place with the new owners, would be extremely rare. In most jurisdictions, once the landlord has filed the required paperwork, they will be granted a hearing on the unlawful detainer. Depending upon the outcome of the hearing, the tenant may be responsible for rent, attorney fees and costs, and any other penalties under the law. A writ may be issued by the judge to allow the tenants to move voluntarily. If the tenant refuses to move, they must be given notice that an eviction order has been issued. Most states give the tenant at least twenty four hours' notice before the sheriff arrives to perform the actual eviction. Eviction laws and processes vary from state to state, but typically the eviction process can range from six weeks to six months.

Be aware that evictions may show up on resident screening reports used by many property management companies to determine a potential renter's eligibility. Sometimes known as a "Renter's Blacklist", resident screening reports may prevent evicted tenants from being able to rent a home. It is best to voluntarily vacate the home upon foreclosure rather than wait to be evicted.

Facing foreclosure and experiencing the foreclosure process obviously puts a lot of stress and strain on the homeowner. In most cases, a homeowner's financial hardship is temporary in nature, but the ramifications can have long-lasting negative consequences unless they are prepared and educated on how to protect themselves from losing their home.

Knowing and understanding your situation in detail may help you save your home from foreclosure and put your financial path back on track.