Foreclosure is the process that allows a lender to recover the amount owed on a defaulted home loan by repossessing and selling the property securing the mortgage. Although foreclosure laws vary from state to state, there are a few general steps that apply to most foreclosure situations. Here’s a short step-by-step guide to the foreclosure process.

Step 1: Pre-Notice of Default

In some states, including California, the first step in the foreclosure process involves the lender sending out a Pre-Notice of Default. Lenders typically send out these notices after payments are delinquent for 45 to 60 days. This notice tells you exactly how much you need to pay to make your mortgage current. It also informs you of how much time you have to cure the default. No official legal action has been taken at this point and many homeowners sell their properties to avoid facing a full foreclosure. Not all states require a pre-notice of default. In many states, the foreclosure process starts with step 2 or 3.

Step 2: Workout Attempts

In most states and with a majority of lenders, the borrower is given the opportunity to work out a viable payment plan. In today’s sluggish economy, lenders have become very receptive to modifying original mortgage agreements. For example, your lender might be willing to ignore your missed payments and will add the delinquent amount onto the end of your loan term. If you are at this stage of the foreclosure process, consider taking advantage of any workout attempt that gives you a little breathing room.

Step 3: Notice of Default

After 90 days of missed mortgage payments, lenders usually send out a Notice of Default, or NOD. This notice serves as the first formal step in the official foreclosure proceedings. At this point, you normally still have the opportunity to bring your mortgage payments up-to-date by a specific date. If you can’t catch up on payments by the deadline, your lender might foreclose on your home.

Step 4: Notice of Foreclosure

If the homeowner hasn’t been able to come up with a workout solution to their debt and does not get up-to-date with payments, the next of the foreclosure steps usually involves the lender sending out a Notice of Foreclosure. This notice informs you of your rights during the foreclosure process. These rights vary according to your state of residence. The notice also tells you the planned auction or sale date of your repossessed property.

Step 5: Auction or Sale

Lenders can sell or auction off your home as quickly as 21 days after filing the notice of foreclosure. In some states, foreclosed properties are auctioned off right there on the steps of the courtroom immediately following the judgment. In other states, selling a foreclosed property could take up to a year. Once the auction is complete, you usually have between 14 and 30 days to move out of the home. If you don’t leave the property by the set date, the local sheriff’s department can enter the premises and forcefully remove you and your possessions.

Step 6: The Redemption Period

Some states offer a post-sale redemption period to borrowers who have lost their homes. The borrower must now pay back the total balance of the home loan and all of the legal and other fees that the foreclosure process has accrued. The length of the redemption period varies according to state law. If the borrower can repay the lender, the winning bidder of the foreclosure auction loses ownership to the home and the original owner takes back possession.

In summary, the foreclosure process is stressful but you have plenty of time to catch up on your delinquent payments. If you are facing a foreclosure, the best option is to talk to your lender about modifying your payment schedule. Use an online mortgage calculator to determine various workable repayment schedules before talking to your lender.

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