The 6 phases of a foreclosure
If you or someone you know is facing possible foreclosure, you should know what to expect.
Many people have either gone through foreclosure, a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property, or know someone who has.
RealtyTrac released its U.S. Foreclosure Market Report on April 15 for the first quarter of 2010. The report calculates foreclosure filings, including default notices, scheduled auctions and bank repossessions, and showed that 932,234 properties were involved in the first quarter. That was a 7% increase from the last quarter of 2009 and a 16% increase from the first quarter of 2009. An astonishing one in every 138 U.S. housing units received a foreclosure filing during the quarter. If you or a loved one are facing foreclosure, make sure you understand the process. While it varies from state to state, there are normally six phases of a foreclosure.
Phase 1: Payment default
A payment default occurs when a borrower has missed at least one mortgage payment. The lender will send a missed-payment notice indicating that it has not yet received that month's payment. Typically, mortgage payments are due on the first day of each month, and many lenders offer a grace period until the 15th. After that, the lender may charge a late-payment fee and send the missed payment notice.
After two payments are missed, the lender may send a “demand letter.” This is more serious than a missed-payment notice; however, at this point the lender is probably still willing to work with the borrower to make arrangements for catching up on payments. The borrower would normally have to remit the late payments within 30 days of receiving the letter.
- Video: Foreclosed homes on the auction block
- On our blog: Good luck getting an FHA loan if you walk away
- MSN Money: Why short sales are the new foreclosure
Phase 2: Notice of default (NOD)
A notice of default is sent after 90 days of missed payments. In some states, the notice is placed prominently on the home. At this point, the loan will be handed over to the lender's foreclosure department in the same county where the property is located. The borrower is informed that the notice will be recorded. The lender will typically give the borrower another 90 days to settle the payments and reinstate the loan. This is referred to as the reinstatement period.
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Phase 3: Notice of trustee's sale
If the loan has not been brought up-to-date within the 90 days after the notice of default, a notice of trustee's sale will be recorded in the county where the property is located. The lender must also publish a notice in the local newspaper for three weeks indicating that the property will be available at public auction. All owners' names will be printed in the notice and in the newspaper, along with a legal description of the property, the property address and when and where the sale will take place.
Phase 4: Trustee's sale
The property is placed for public auction and will be awarded to the highest bidder who meets all of the necessary requirements. The lender, or firm representing the lender, will calculate an opening bid based on the value of the outstanding loan, any liens and unpaid taxes, and any costs associated with the sale. Once the highest bidder has been confirmed and the trustee's sale is completed, a “trustee's deed upon sale” will be provided to the winning bidder. The property is then owned by the purchaser, who is entitled to immediate possession.
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Phase 5: Real-estate owned (REO)
If the property is not sold during the public auction, the lender will become the owner and will attempt to sell the property on its own, through a broker or with the assistance of an REO asset manager. These properties are often referred to as "bank-owned." The lender may remove some of the liens and other expenses in an attempt to make the property more attractive.
Phase 6: Eviction
The borrower can often stay in the home until it has been sold either through a public auction or later as an REO property. At this point, an eviction notice is sent demanding that any people vacate the premises immediately. Several days may be provided to allow the occupants sufficient time to remove any personal belongings, and then typically the local sheriff will visit the property and remove the people and any remaining belongings. Belongings may be placed in storage and retrieved later for a fee.
The bottom line
Throughout the foreclosure process, many lenders will attempt to make arrangements for the borrower to get caught up on the loan and avoid a foreclosure. The obvious problem is that when a borrower cannot meet one payment, it becomes increasingly difficult to catch up on multiple payments. If there is a chance that you can catch up on payments -- for instance, you just started a new job after a period of unemployment -- it is worth speaking with your lender. If a foreclosure is unavoidable, knowing what to expect throughout the process can help prepare you.
Thank you "Kuuner." This article is horribly inaccurate.
P.S.: Is your company hiring?
I am purchased and am living in a manufactured home now for 3 years. I lost my job a year ago and have been living on unemployment (after chapter 7 bankruptcy, tons of medical bills). (I am very conscious of my money, and I have been looking for work for over a year, I have had several little "temporary part time" jobs and steadily searching at least 6 hours a day sending resumes and cover letters, and have had very few interviews). I am not behind on payments, but my unemployment runs out in the middle of August, and I am scared that I will loose my home.
I live in Texas and although I have read the "6 Phases of Foreclosure" does it work the same with mobil homes?
I'd bet this article was written (and 'planted') by the banking industry to make foreclosure sound scarier (and quicker) than it really is, trying to intimidate people into not even considering it.
This is NOT the way things are now. The banks do not want another house that is worth less than they have loaned on it. I have a neighbor who has not made a mortgage payment in over three years and is still living in the house! Probably not for long . . .
Come on, msn give us the truth, or don’t print the article at all! What were you paid (and by who) to put this ‘un-truth’ on-line?
There are so many incorrect statements in this "Six Step to Foreclosure" article. I would not rely on the time frames. I would not rely on the publication rules nor would I try to evict anyone right away after buying the property at foreclosure sale.
You do NOT have immediate possession rights in many states. There are some states that have a very long redemption period where the new owner does not hat the right to market/rent/sell until redemption expires.
You do NOT have ANY redemption period of 90 days to reinstate after NOD. You have the ability to negotiate a reinstatement/short sale/deed in lieu or whatever up to and in some cases, after sale but in now way shape or form do you have a blanket 90 days to "Reinstate" after NOD. That's an immature and dangerous statement the author made.
Not all states sell by trustee's public auction and again, you do not automatically take immediate possession. In addition, not all sales are bid in the method described. FNMA/FHLMC require specific bidding procedures regardless of the lenders calculations/amounts. Loans with MI also have specific instructions regardless of lender/servicer calculations.
I manage a foreclosure division of a nationwide servicer and would say, listen to the author at your peril.
TO WHOM IT MAY CONCERNING
I BOUGHT MY HOUSE IN 1995 IN VA, AND I GOT SICK AND BECAME DISABILITY , I GOT BAD CREDIT ,SO I DID REFINANCE IN 2005 AND I PUT MY BROTHER NAME IN MY DEED AND HE IS ON THE MY HOME LOAN ,THEN HE MOVE TO AZ AND HE BOUGHT A NEW HOUSE $400000.00 , AND NOW HIS HOUSE IN THE MARKET IS $220000.00 . HE WANTS FOR HIS HOUSE IN AZ FORCLOSESURE,MY QUESTIONS IS? MY HOUSE IS IN VA WILL BE AFFECTED BY BANK? IT MEAN THE BANK CAN TAKE MY HOUSE IN VA FOR SALE OR NOT? BECAUSE MY LOAN BALANCE IS $170000.00 AND MY HOUSE MARKET IS $ 275000.00.DO YOU THINK THE BANK CAN TAKE MY HOUSE FORLOSESURE TOO? PLEASE HELP ME ,I GOT DEPRRESED THIS PROPLEMS VERY MUCH.