What Does a Foreclosure Notice Mean? Your Options to Save Your Home
A foreclosure notice means your lender is starting the process to sell your home. You have options to save your home including loan modification, forbearance, selling the property, or filing bankruptcy. Taking action quickly is crucial to explore your options and avoid losing your home.
Get Free ConsultationMany homeowners struggle to make their monthly mortgage payments. An unexpected financial hardship can quickly cause you to fall behind. Missing several payments puts your home at risk of foreclosure. Fortunately, you have options if you are behind on your mortgage payments.
You need to understand three critical things:
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Check If You Qualify- What happens when you fall behind on mortgage payments
- What a foreclosure notice actually means
- How to avoid losing your home to foreclosure
Understanding a Foreclosure Notice
A mortgage is a secured debt that allows a lender to sell your home if you stop making payments. You won’t lose your home immediately after missing payments. Lenders must follow foreclosure laws that vary by state. Some states allow nonjudicial foreclosures where lenders can sell property without a court order. Other states require judicial foreclosure with a court order before selling your home.
What Is a Foreclosure Notice?
A foreclosure notice is a warning that your lender is starting the foreclosure process. Foreclosure is the procedure the lender must follow to sell your home at public auction. After the property sells, the lender uses the proceeds to pay off your home loan.
Missing one payment won’t trigger a foreclosure notice. If you are delinquent for more than 45 days, you’ll first receive a written notice of default. The notice explains that you need to pay any missed payments. It may also explain your loss mitigation options. Loss mitigation is a process where borrowers and lenders work out an arrangement to avoid foreclosure.
If you don’t make up the missed payments, you will probably receive a written notice of foreclosure from the mortgage company. In most cases, mortgage lenders must wait until you are at least 120 days delinquent before starting the foreclosure process.
In judicial foreclosure states, the lender will serve you with a summons and complaint. Answering the summons allows you to raise any defenses you might have. Failing to answer will probably result in a judgment against you. The judgment allows the mortgage company to schedule a foreclosure sale of your home at public auction.
Steps of a Nonjudicial Foreclosure
Some states permit nonjudicial foreclosure processes. Nonjudicial foreclosures have fewer steps and are quicker. When you miss mortgage payments, the servicer will send notice of the breach. The lender may be required to send the breach letter when you’re 30 days behind. In some states, the lender must send a pre-foreclosure notice. Federal law usually requires the mortgage servicer to wait at least 120 days before starting a nonjudicial foreclosure proceeding. They must also allow you 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 determines how much time the lender must wait between filing the notice of default and scheduling the foreclosure sale.
Foreclosure Sale
If you don’t make up the missed payments by the deadline in the notice of default, the lender will file a notice of sale. The notice includes the date, time, and place of the foreclosure auction. It will be recorded with the county clerk and typically published in a newspaper. You 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’ll be given time to reinstate your loan before the foreclosure sale. Reinstatement 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 sells at foreclosure, the new buyer will send you an eviction notice.
In any foreclosure, the foreclosed property may sell for less than the balance due on the mortgage loan. If that happens, the lender can seek a deficiency judgment against you. A deficiency judgment requires you to pay the difference between the mortgage and the sale price.
What Can You Do About a Foreclosure Notice?
You have several options to avoid a foreclosure sale.
Sell the Property
You can try to sell your home before the foreclosure sale. A real estate agent can help you sell your home. If the market value of your property is less than the mortgage balance, you would need lender approval to sell. That’s called a short sale. You may still be responsible for a deficiency in a short sale.
Modify Your Home Loan
A loan modification could allow you to add the missed mortgage payments to the loan. A loan modification can change the term (length) of the loan and the interest rate. Doing so 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 Payments or Ask for a Forbearance
If you can make up the mortgage payments 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 you stop making mortgage payments temporarily. The lender also agrees to not foreclose during this time. After this time expires, you’re 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 may also help you catch up on your mortgage payments. Most people file Chapter 7 or Chapter 13. Chapter 7 is a liquidation proceeding where assets that can’t be protected may be sold by a trustee. Chapter 7 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. You can speak with a bankruptcy attorney for free to explore whether Chapter 7 or Chapter 13 is right for your situation.
Avoiding Foreclosure
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, you can still find a place to rent. You can become 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.