Foreclosure Timeline: What to Expect and How to Regroup

Housing costs don’t just make a deed hard to get. They can also make it a challenge to keep. Before we get to the mortgage foreclosure timeline, let’s work backwards and think about what can be done if you believe foreclosure could be in your deed’s future.

Is Foreclosure My Only Way Out?

It’s one way. But it has its own set of costs. It’s a time drain. It’s stressful. And it’s rough on a credit profile.

Act early to try to recover your mortgage loan and save your deed. By “act” we mean call the mortgage company. Lending companies are used to guiding customers through alternatives to foreclosure.

Read your “action items” on the company website and open your mail. Stay on top of notifications. They have contact information for discussing your options. And you do need to know if the company is preparing to take steps in the direction of foreclosure. As an account holder you’ll be expected to know the status of your loan.

Timeline for a Foreclosure? It Follows These 5 Steps

Here’s how the process happens, roughly. Each state will have laws that impact the timeline.

1. The first month the mortgage goes unpaid: Your mortgage company contacts you. If you don’t anticipate a quick catch-up, speak to the company now about a possible payment plan. Line up a housing counselor.

• The second month leaving the mortgage unpaid: Can you make one payment, to stop the loan from falling three months behind? A housing counselor can advise you on your options.

• The third month leaving the mortgage unpaid: Your company sends its Demand Letter. This will tell you how much debt is delinquent. You have 30 days to bring your mortgage current. You still have time to work out a plan with your mortgage company.

• The fourth month leaving the mortgage unpaid: You’re approaching the Demand Letter’s deadline for repaying the past-due debt or working out alternative arrangements. After the deadline, the mortgage lender’s lawyers take over your case. You’ll be charged for their work. Do not walk away from the matter. A housing counselor can still help you.

• The lender’s attorney will schedule and publicize the actual foreclosure sale. You may be notified of the date by mail or a door poster. You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.

Even after the sale date, you may have a redemption period. It’s best to ask for a housing counselor’s guidance as soon as needed, but don’t hesitate to ask at any point in the process.

Mortgage lenders in some states can skip the court process. In these states, foreclosure is easier and faster for lenders. These are deed of trust states.

Will Mortgage Companies Work With Me to Avoid Foreclosure?

Banks and mortgage servicers want you to keep your mortgage on track. So, what’s in your lender’s “loss mitigation” toolbox? A repayment plan could be available. Especially if your financial hardship is likely to be temporary:

• If you can catch up with missed payments through a lump sum, the lender might reinstate the mortgage.

• The lender might agree to allow delayed payments. In some circumstances, lenders offer loan modifications to extend a loan term, easing the borrower’s monthly payment burden.

Ask if there’s help available from the lender to get rehoused if necessary. Line up a place to live before your credit profile takes a hit due to your mortgage changes.

If You Can’t Save the Deed

Short of foreclosure, you can apply for loss mitigation. You’ll need to submit a package of personal financial information to work with the lender. Options are:

• A pre-foreclosure sale. In this time when homes are so valuable, this could be the best way out. Ask the mortgage company if you may apply to undertake a short sale. This can make sense if you can find a buyer and sell the home, although the purchase price falls short of your debt. There are real estate agents who know how to move fast and make this kind of sale work.

• A deed in lieu. Quicker than a short sale, a deed in lieu means giving up control of your deed to the lender. In lieu means instead. This means the lender will take the house deed instead of foreclosing.  You transfer your home’s title to your lender, typically by quitclaim. And you get released from your loan.

Note that most mortgage companies—or buyers—won’t want your deed unless and until it’s otherwise free and clear of liens.  

My Loan Is Under Water. Will I Be Stuck With a Deficiency Judgment?

Could you wind up with a deficiency judgment if your arrangement doesn’t fully pay off your loan debt? In some states, yes.

In those states, your lender would need to waive the right to go after you for the rest of the funds. Find out the legal situation in your state before applying for a short sale or deed in lieu. Foreclosure with no deficiency judgment, or filing for bankruptcy, could make better sense. Get a counselor (see the Case-Specific Guidance section below) to walk you through the pros and cons of possible decisions.

Lenders can’t go after borrowers for deficiencies in every state. Borrowers have more protection in what’s called non-recourse states.

Where Do I Turn for Case-Specific Guidance Now?

Looking for help and support? Look for an approved counselor. For advice and help negotiating with your lender, there is:

• FEDERAL HELP.  Contact a federally approved housing counselor working in your area. Call (800) 569-4287 and review the Department of Housing and Urban Development website to learn more. Got an FHA-backed loan? Get in touch with the Federal Housing Administration’s Resource Center: (800) CALL FHA (225-5342). For a VA-insured loan, pull up the VA Foreclosure Alternatives webpage.

• ALTERNATIVE HELP. Call the Homeowners Hope Hotline at (888) 995-HOPE.

• STATE-FUNDED HELP. Check your state’s homeowner assistance resources. Learn as much as possible from your state housing department on foreclosure law and assistance.

Local legal aid can be helpful. But watch out for “mortgage consultants” promising “foreclosure rescue.” If a for-profit company offers to negotiate for you, you’ll have to pay for it—in some cases, much too high a price. Don’t believe a business that says it can get a better mortgage relief deal than your own mortgage company.

If There’s No Way to Save My Mortgage, What’s My Next Move?

Looking ahead, if there’s no way to take on a renter or otherwise save the mortgage, you’re going to need to make a move. Financial support for your move (cash for keys), may be available to you after you give up your deed. Ask the mortgage company.

Understand that foreclosures are visible in credit checks for seven years. This can affect job applications. A foreclosure can make future mortgage applications harder and the mortgage rates higher.

After a deed in lieu or short sale, you could apply for a conventional loan again sooner than if you let foreclosure happen. Still, an FHA loan may be available three years after a foreclosure or a foreclosure alternative. 

Right now, though, if you’re behind in your payment and may be headed for a default situation, proactivity is your best policy. Take action. Connect with the resources available to you. We hope this outline helps you make the best possible moves in a difficult time.