If you miss several mortgage payments, your lender may begin the foreclosure process, which can lead to months of financial and emotional stress, and even result in the loss of your home.
What is a foreclosure?
A foreclosure is when a lender takes control of a property after the borrower misses several mortgage payments.
When you bought your home, you agreed to a deal with your bank or lender: They gave you the financing upfront to pay for the home, and you agreed to pay a specific amount each month for a set number of years. If you fail to keep up with the mortgage payments, the bank or lender can foreclose on the property and sell it as a way to make back the funds that were lost.
Currently, the foreclosure moratorium for federally-backed mortgages is in effect until at least June 30, 2021, so most homeowners continue to have some protection from foreclosure.
How do foreclosures work?
When you purchased your home, you signed a mortgage contract that specified the amount of money you borrowed, as well as the interest rate and the details about your monthly payment. Even though you call the property home, if you have a mortgage, the bank or lender technically owns the property until you make your final mortgage payment.
There are several reasons why a borrower could fall behind on mortgage payments, including:
- You experienced a layoff from your job – In this scenario, you might find you have to prioritize other payments, such as medical expenses or childcare costs.
- Your adjustable-rate mortgage became more expensive – If you have an ARM and your interest rate climbs, you might find that you now can’t afford your monthly payments. Alternatively, this can also be the case if your property taxes increase.
- Your home’s value has gone down – If the value of your home has declined to the point where you owe more on your mortgage than what the home is worth, it might not make sense to keep making payments.
- You encountered an unexpected circumstance – A natural disaster or the death of the primary earner, for example, could make it more difficult to keep up with payments.
After several missed payments, your lender can start the foreclosure process. This can be either:
- A judicial foreclosure, meaning the lender needs to get a court order; or
- A nonjudicial foreclosure, depending on the state where the property is located.
How long does foreclosure take?
The foreclosure process can take some time, and up to a couple of years. The average foreclosure in the U.S. took 857 days, or just over two years, as of the fourth quarter of 2020, according to ATTOM Data Solutions. In some states, the foreclosure process exceeded three years or more.
The foreclosure process
From the time of your first missed mortgage payment to the foreclosure sale of your home, there are several steps in the foreclosure process. These phases can vary by state, but generally follow this timeline:
Step 1: Missed mortgage payments
If your mortgage payment is a few days late, don’t worry just yet — your lender may have a grace period of up to two weeks for you to make your payment. After the grace period, however, your payment is considered late and you’ll be charged late fees. You are also likely to hear from your lender about your options during this time.
Step 2: Notice of Default
After three to six months of missed mortgage payments, your lender will file a Notice of Default with the local recorder’s office. Your lender will also send one to you via certified mail, and depending on your state, might post the notice on your front door. This notice specifies how much you owe in order to bring your mortgage back into good standing.
Step 3: Preforeclosure
Preforeclosure is the time period between the Notice of Default and the auction or sale of your home. During this time, if you can get your hands on the amount specified in the Notice of Default, you’ll be able to stop the foreclosure process from going any further. The exact amount of time you have depends on your state. You might also be able to sell your home during this time to pay back the amount owed to your lender; this is called a short sale.
Step 4: Notice of Sale
If you don’t have the money to bring your mortgage into good standing within the allotted time frame, your lender will file a Notice of Sale, and your home will be placed up for auction at a specified time and location.
How the Notice of Sale is published depends on your state. For example, in North Carolina, the notice must be published in a local newspaper and posted on the door of the local courthouse, while in California, it must be posted on the property as well as a public place in the county.
Because the Notice of Sale is public information and has been advertised, several buyers, including investors, might be interested in buying your home.
Step 5: Eviction
Following the auction and sale of your home, you’ll generally have a few days to gather your belongings and move to a new residence.
What to do if you’re facing foreclosure?
If you anticipate that you might miss a mortgage payment — or if you’ve already missed one — don’t just hope that your lender won’t notice or that you’ll be in a better financial situation next month.
“The best thing a customer can do when they think they may have challenges making their mortgage payments — even before they actually miss a payment — is to contact their servicer,” says Tom Goyda, senior vice president of Consumer Lending Communications at Wells Fargo. The bank is continuing to work with borrowers to provide additional forbearance extensions when possible.
“Those who had a forbearance plan established before March 2021 will be able to request another six months after a year,” Goyda says.
If you haven’t already taken advantage of pandemic relief options, reach out to your lender or servicer as soon as possible to ask about forbearance. The deadline to make this request has been extended to June 30, 2021.
If you’re struggling to make mortgage payments, your best bets to avoid foreclosure are time and communication. As soon as you realize you can’t pay your mortgage, reach out to your lender or servicer to learn about the options available to you. If you think you won’t be able to pay your mortgage next month, make it a point to talk to your lender as soon as possible.