Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Formally, a mortgage lender (mortgagee), or other lien holder, obtains a termination of a mortgage borrower (mortgagor)’s equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure).
Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt. While this equitable right exists, it is a cloud on title and the lender cannot be sure that they can repossess the property.
Therefore, through the process of foreclosure, the lender seeks to immediately terminate the equitable right of redemption and take both legal and equitable title to the property in fee simple. Other lien holders can also foreclose the owner’s right of redemption for other debts, such as for overdue taxes, unpaid contractors’ bills or overdue homeowner association dues or assessments.
How Many Mortgage Payments Can I Miss Before Foreclosure Happens?
When borrowers take out a home loan, they have to start making monthly mortgage payments. As many homeowners know, it can be easy to miss a few payments. You might wonder how many mortgage payments you can miss before foreclosure happens. The answer is that you can miss four payments, or about 120 days, before you’re in danger of being foreclosed upon.
What happens when you miss mortgage payments?
As a rule, the more mortgage payments you miss, the more trouble you’ll be in with mortgage companies. Missing mortgage payments can cost you more — and with each missed payment, you’ll be inching closer to foreclosure.
Paying your mortgage should be among your top priorities. Missing mortgage payments can be disastrous for your personal credit and can have an adverse effect on your credit score, for which payment history is a major factor. If you do start missing payments, you should be familiar with the penalties and what can happen after each missed payment.
No-one intends to miss a mortgage payment, but there are times when life throws you a curve ball and debt starts to creep up on you. If this starts to happen, you need to manage debt this includes sorting out your mortgage payments. Don’t forget that mortgage companies want to get their money without a messy foreclosure process if possible; it’s more cost effective. This means that they want to come to an arrangement with you.
If you need an extension, you can often get one without penalty. It’s common to be granted a 15 day grace period. If you pay within this time, you’re in the clear. If you fail to pay, and then miss another payment, things get more complicated. Late fees can be added to the amount you owe and once you miss the second payment you’re in default.
First Missed Mortgage Payment
If you miss your first mortgage payment, your lender will typically offer you a grace period of fifteen days. During these fifteen days, you can send in your payment without being considered delinquent.
Once this grace period is up, however, you’ll be charged a late fee. This fee is usually a fairly substantial percentage of your mortgage, such as 2 to 5 percent of the monthly payment amount.
Second Missed Mortgage Payment
If you miss your second mortgage payment, your mortgage is likely considered to be in default. At this point, the lender will probably contact you to find out why you haven’t made your payments. You should take the opportunity to explain your situation to your lender and let him know what you’re doing to resolve the situation.
Your mortgage servicer will usually become increasingly aggressive about getting paid if you miss your second mortgage payment, but it gets even worse if you continue missing payments. The U.S. Department of Housing and Urban Development advises that it can help to work with a housing counselor at this — or any — point.
Once you miss a second mortgage payment, you’re likely to see a change in the mortgage servicer. They will normally become more assertive in the way they deal with you. This can be a frightening situation to deal with, but you can still avoid foreclosure if you explain what you’re doing to handle your monthly payment issues. You may be able to reach an agreement with the mortgage lender.
3 Steps to Free Yourself from Debt
After you’ve gone about 90 days without making a payment, you’ll receive a demand letter. A demand letter informs you of the amount you are delinquent and that you have 30 days to bring your mortgage current. If you don’t pay the specified amount or make arrangements by the deadline, foreclosure proceedings might begin. You still have time to try to work out an arrangement with your lender, but it’s unlikely that they will take less than the total amount of mortgage payments you owe.
If you still can’t make the payments within 90 days, however, it’s game over: The lender will begin the foreclosure process and bring legal action against you.
Fourth Missed Mortgage Payment
After you’ve missed the deadline provided in the demand letter and you are four months behind on your mortgage payments, the foreclosure process will usually begin. First, you’ll be referred to your lender’s attorneys. As a result of your delinquency, you’ll be required to pay any legal fees during this time. You could still have a chance to avoid foreclosure if you can make your payment or work something out with your lender.
The good news is that if you’re in danger of missing a mortgage payment, you don’t have to worry about foreclosure just yet. Legally, it takes at least 120 days before the foreclosure process begins, and you can often stop it from happening at all, if you take action now and speak to your mortgage lender.
You may be worried about approaching them, given how hard you worked to get a mortgage in the first place; but acting now is the best thing to do if you want to avoid foreclosure. If you buy your head in the sand, and ignore the problem, then you could find yourself on the path to foreclosure.
What Happens if You Don’t Pay Your Mortgage for 90 Days?
If you don’t come to an agreement with your mortgage lender, and you miss three mortgage payments, you will not have paid anything off your mortgage debt for 90 days. This is a serious situation to be in. You will receive a letter from the mortgage lender telling you that you’re delinquent in your mortgage payments and have 30 days to bring your account up to date.
If you want to stay in your home, you need to speak to the lender in order to try and avoid foreclosure proceedings. They will normally expect full payment of the money that’s owed but you may still be able to reach a payment arrangement.
What Happens After 120 Days With No Mortgage Payments?
Once the 30 day period mentioned in the letter from the lender has ended, if there has been no payment made and no agreement reached, the foreclosure process starts. The mortgage lender wants the money that’s owed and it’s now 120 days with no monthly payments made. That’s four monthly mortgage payments missed before foreclosure begins.
It’s worth noting that state laws vary when it comes to foreclosure. In some states, home loan providers are required to meet with borrowers before the lender files for foreclosure proceedings to start. This is an attempt for an agreement to be reached that can avoid foreclosure. If you face the possibility of foreclosure, you need to research the law in your state.
The Foreclosure Process
The foreclosure process in the US is different from the UK foreclosure process and from the foreclosure process in some Canadian provinces. In the UK, foreclosure is uncommon. Repossession of your home is most common if you don’t pay your mortgage. This means that the lender repossesses the property, sells it and takes any money owing with the remainder being paid to you. This is similar to the Power of Sale process which is used in Newfoundland, Prince Edward Island, New Brunswick and Ontario in Canada. Both of these processes tend to be quicker than the foreclosure process in the US. This is especially true of Power of Sale as no court intervention is required.
If you’re subject to foreclosure in the US, you’ll receive a “notice of default” at the start of the process. You typically have 90 more days before you’re out on the street at this point. However, the length of time can vary according to state law.
After the 90 days, you’ll receive a “trustee’s sale notice” which tells you that your home is being sold in order to pay your mortgage debt. The sale is also advertised in the local press. If the property sells for less than the amount of the debt, this is known as a “short sale”. The lender takes as much as they can from the sale and you lose your home.
Sometimes, the lender simply takes ownership of the property and it’s not sold. If this happens, you will simply be evicted from your home and all belongings left in the property will be stored, and only released after the payment of a fee.
Judicial vs. Non judicial Foreclosure
The primary difference between a judicial and a no judicial foreclosure proceeding is that the former involves court action. The lender would have to file a lawsuit with the court and prove that they have taken the necessary steps to remedy the situation and collect any debts still owed. This process could take between 2 and 3 months after the Notice of Default has been issued.
The no judicial foreclosure process is also known as a “ foreclosure by power of sale. ” this provision allows the lender to sell the property to recoup any losses without having to obtain court permission. As a result, this process could be faster.
If you’ve reached the foreclosure stage, you have the right to stay in your home throughout the process, but it will be difficult to get your home back. After all legal work has been completed and the lender is legally allowed to foreclose on the home, the process will begin.
The first thing that will occur in the foreclosure process is that the lender will record a Notice of Default. From here, you have 90 days to pay what you owe. After 90 days, if you have not made your payments, a Notice of Sale will be recorded and sent to you by certified mail. The notice will also be published in a newspaper and posted on your home and in a public place, such as the local courthouse. After a minimum of 21 days from the Notice of Sale being recorded, the house will be put up for auction; you will immediately lose control of your home once it’s sold.
Foreclosure is the last thing you want to happen to your home, but it can be relatively easy to get caught up in other expenses and even lose the home in a matter of months. By making your payments on time — and if that’s not possible, taking advantage of the grace period — you can avoid any legal difficulty with mortgage payments.
It’s easy to run into foreclosure, but it is possible to avoid it within the due dates of the first three payments. It’s no huge deal if you miss a payment or two, but the sooner you make your payments, the better.
Obviously, that is a terrible outcome. So how do you avoid it?
Investing in real estate is a good idea, but it can cause problems if you don’t manage money well or you hit an unexpected crisis in life. Don’t forget that mortgage problems can affect your credit score as well as leading to foreclosure, in the worst case scenario. Always speak to your mortgage lender as soon as you know you’re going to have problems paying. You will usually be able to work out a solution and stop the foreclosure process from happening.
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