Foreclosure timeline differs from state to state and varies widely depending on whether a foreclosure is judicial or non-judicial. Judicial foreclosure generally takes much longer than non-judicial, because a suit must be filed and court appearances must be made.* In states that allow non-judicial foreclosure, banks will generally follow some form of the following three-step process, when a homeowner falls behind on payments:
- Default Period
- Acceleration or Redemption Period
- Foreclosure 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 officially in default 45 days after the after the missed payment was actually due. This period between when a homeowner officially falls into default and the bank takes action is considered the default period.
1. 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. In some cases (as in FHA loans in Colorado), the lender is not allowed to file a Default Notice until as many as three payments are officially late. In general, 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 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 their 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 homeowner's credit aside from the missed mortgage payments that got them there.
Once the homeowner is officially in default and the bank decides to pursue a foreclosure, the lender will have to file (in most states) a Default Notice, which begins what is known in some states as the Acceleration or Redemption Period.
2. The Acceleration Period. Basically, this notice notifies the homeowner and the public that the homeowner has a certain amount of time (as little as 20 days in some states, as many as 90 in others) to find a way to pay off the remaining balance on the mortgage before the bank schedules an auction date. 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.
If the note is not paid off in full by the end of the acceleration or redemption period 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 Period, and the homeowner’s property will be sold at auction on a certain date.
3. Foreclosure Period 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, and at this point, it may already be too late. 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.
*In states like Florida, where all foreclosures are judicial foreclosures, the homeowner and their agent will want to keep records of when all court filings and appearances are made and scheduled, as this will help them determine the earliest possible date that a foreclosure auction may occur. Because judicial foreclosure is such a complicated process, the average time to foreclosure in Florida is 6 months, and in this particular case, the homeowner (according to state law) is still allowed up until the actual day of the auction to redeem the property from foreclosure by paying the note in full. For those reasons, a judicial foreclosure, while more haphazard and irregular than a non-judicial foreclosure, can often be more forgiving when it comes to negotiating a deal with the lender. The homeowner, however, is still advised to take action at the earliest sign of trouble.