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Facing foreclosure? Knowing the ropes can help
you climb out
By Michael
D. Larson • Bankrate.com
 What
if one day you woke up to find the county sheriff waiting outside
with an eviction notice? You have a few hours to gather your things,
but after that, you're on your own.
It sounds scary, but that's exactly what borrowers
who miss their mortgage payments eventually face because of foreclosure.
The "F" word no homeowner wants to hear, foreclosure causes pain
and frustration, ruins credit histories and leaves consumers homeless
even during the best of economic times.
But while many people are vaguely familiar with
the concept, few understand exactly what foreclosure entails. That's
unfortunate, experts say, because troubled borrowers need to know
what to expect and how to respond if they want to avoid being kicked
out of their homes.
"The key here in the actual mechanics is one
of focusing on early intervention," says Danny Smith, manager of
loss mitigation at the mortgage investment agency Fannie Mae. "The
sooner the borrower and servicier are able to talk to each other,
the more likely they are to work something out that allows the borrower
to stay in the home.
"There are a lot of workout options that are
available to borrowers if they find themselves in trouble."
In the beginning ...
The foreclosure process in one sense begins long before a homeowner's
property is sold on the courthouse steps.
By missing a monthly mortgage payment, customers
get the ball rolling, and by ignoring the problem they make it worse.
The end result can be devastating for borrowers and lenders alike.
"Sometimes borrowers don't have any other options,"
Smith says. "A lot of it tends to be marriage difficulties. Some
of it can also be medical conditions, serious medical problems in
the family.
"And of course, people are always moving between
jobs and various things like that."
After missing the first-of-the-month payment
due date, a consumer usually enjoys a small window or grace period.
During that time, the mortgage servicing company responsible for
collecting the customer's payments and administering the loan doesn't
do anything out of the ordinary.
15 days later ...
But once 15 days pass, the servicer usually will tack on a late
charge and start trying to get in touch with the borrower over the
phone.
"Each lender uses their own method. If you typically
have a customer that pays you around the end of the month and you
know that based on the historical methods, you may not call them until
the end of the month," says Michael Drawdy, first vice president at
Countrywide Credit Industries Inc.'s mortgage company. But if not,
"You may call anywhere from one to three to four times during the
first month and you may also send out some type of late notice during
that month."
A customer who doesn't start talking to the
servicer to figure out a way to make up the missed payment faces
further problems.
45 days later ...
After 45 days to 60 days from the original payment date, the servicer
will issue what's called a demand or breach letter. The letter warns
the consumer that something has to be worked out or the house will
be referred to foreclosure.
If another 30 days pass with no resolution,
the formal foreclosure process begins.
The process
At this point, the steps involved vary widely depending on which
state the borrower calls home. Some states have a judicial foreclosure
process. Servicers operating in these states hire local attorneys
who file court documents, attend foreclosure hearings and otherwise
manage the cases.
In other states, the process doesn't involve
the courts as much. Lender representatives are required to record
foreclosure notices at the local courthouse and publish details
about borrower debts in the local newspaper. In the end, a foreclosure
sale or auction is held on the borrower's property, at the local
courthouse or in some other nearby location.
The time involved in this stage of the process
varies widely, too. In some states, consumers get almost a year
between the beginning of the formal foreclosure process and the
forced home sale. In others, the end game takes only a couple of
months. But troubled borrowers everywhere have at least five or
six months from the first missed payment to straighten things out.
And they should make the most of that time. Lenders usually lose
money on foreclosures, so they're eager to cut deals with customers
who want to stay in their homes.
"One of the big, big misconceptions that's out
there in the world is that the banks want to foreclose and that's
just the farthest thing from the truth," says Mory Brenner, a Pittsfield,
Mass., attorney who works with borrowers in foreclosure. "The bank
wants the money. They don't want to put you on the street. They
don't want the house. They want to work something out with you."
-- Updated: July 16, 2003
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