The Foreclosure Process
The foreclosure timeline differs from state to state, but generally, the same pre-foreclosure procedures apply in every state. When a homeowner falls behind on his or her mortgage payments, lenders generally follow the same process, which is made up of the following three stages:
- Default Period
- Acceleration Period
- Foreclosure Process
Default Period
A homeowner is considered to have truly missed a payment 30 days after the expiration of the “grace period” after the first missed payment. The “grace period” is typically the 15-day period that a homeowner has to make a payment after it’s due without the payment being considered late. So if a homeowner’s payment is due on the first of the month, he or she would be considered behind on payments 45 days after the after the missed payment was actually due. This period is considered the Default Period. The Default period can be anywhere from 45 days to 12 months (in some rare cases) depending on how aggressive that homeowner’s mortgage lender is. Some will begin acceleration and foreclosure proceedings after the first missed payment, but others will wait much longer. However, because there is no way to determine how aggressive the lender is going to be on a particular property, it is important for homeowners to contact America’s Home Rescue or a Pre-foreclosure Specialist (which could be you!) as soon as they miss a payment. The best time to work out a solution like a Short Sale is just after the homeowner goes misses a payment.
During this period, the homeowner will probably be receiving calls from their lender trying to collect the debt or work out a payment plan. If a homeowner can truly afford a payment plan to make up late or missed payments (i.e. the situation that was causing financial hardship has been resolved), we always recommend this option. However, what some homeowners don’t realize is that when they begin a payment or workout plan with their lender, depending on the plan provided, they are still responsible for their regular mortgage payments. This means that their monthly payments to the bank will dramatically increase, which will only exacerbate the situation if they were having difficulty affording your house in the first place. We recommend that homeowners do their homework before signing up for a payment plan or “forbearance agreement.”
Many attorneys may also advise the homeowner to file bankruptcy, which will prevent the lender from foreclosing on the house...temporarily. In certain situations, bankruptcy may very well be the best option, but if, for example, the house is the only debt prompting the homeowner to pursue bankruptcy, they may want to reconsider. If the trustee payments associated with the bankruptcy become overwhelming and the homeowner falls behind, the bank can lift the property out of bankruptcy and foreclose on it, and the homeowner will have both a bankruptcy and a foreclosure on their credit report. We find that in most cases, Short Sales have no effect on a homeowners credit aside from the missed mortgage payments that got them there.
Acceleration Period
The next stage is the Acceleration Period, sometimes called the Redemption Period in other states. This stage begins when the homeowner receives a written notice from the lender stating that the entire amount of his or her mortgage is due in 30 days (for Texas) or the lender will begin foreclosure proceedings. During this period, it is still possible to negotiate a solution like a Short Sale, but the homeowner needs to be aware that the clock is ticking. The notice will be sent from the lender’s debt collection department, or in some cases, from the lender’s attorney. In many states, a Notice of Default will also be filed with the county and published in a public place like a newspaper. Because the homeowner's default has now been made public, investors, lenders, attorneys, and real estate agents, many of whom may not have the homeowner's best interests in mind, offering to bail them out. It is crucial that homeowners in this situation become educated about their best options, which may not include staying in their current home, in order to avoid being ripped off. Foreclosure hotlines and knowledgeable Short Sale Specialists can often be their best resources for this type of information when their ultimate goal is to save the homeowner. If a potential client tells you that an "angel" has already offered to help them stay in their home for a fee, make sure they know consequences of signing a quitclaim deed and "renting back" their property.
Foreclosure Process
If the note is not paid off in full in 30 days and the homeowner has not worked out a payment plan, the lender will send the homeowner written notice—which usually comes from the lender’s attorney—that they are beginning the Foreclosure Process, and the homeowner’s property will be sold at auction on a certain date. At this point, a workout program or a Short Sale may be very difficult to negotiate because the homeowner's file is already on a foreclosure attorney's desk, and the bank is already out most of the costs of initiating the process. The foreclosure process differs from state to state. Therefore, the timeline may be drastically different. In the state of Texas, the foreclosure period is 21 days, which is one of the most aggressive foreclosure processes in the nation. Many homeowners make the mistake of not taking any action to avoid a foreclosure until they receive their Foreclosure Notice. The faster a homeowner takes control of their situation and calls America’s Home Rescue or their local Short Sale Specialist for help, the more likely it is that a foreclosure can be avoided.