As I speak with people in foreclosure, I have come to realize that almost no one I talk to understands what “foreclosure” really means, and that it is a process with rules that must be adhered to. I am going to lay out the most important steps in that process in hopes that you will gain confidence in working your situation out, by knowing exactly what you are dealing with.
Step 1 – You have missed at least 3 payments.Even though this technically isn’t a part of the foreclosure process, this must happen before the process can begin. It is standard practice for a bank to begin the foreclosure proceedings after you are 90 days late on your mortgage. *Note – In today’s crazy environment it is not uncommon for banks to wait substantially longer before initiating foreclosure.
Step 2 – Notice of Default Filed. This is the official gun that sounds the beginning of the process. The NOD is public record, and announces to the world that you are taking the first step towards foreclosure. This is a legal step. It gives legal notice to other creditors, and lienholders for example, that your home – which may serve as collateral on a lien they hold – is in jeopardy of being sold at auction. You are supposed to be notified of this step by mail, but if you aren’t, it doesn’t change anything.
Step 3 – Notice of Trustee’s Sale Filed. This typically occurs 90 days after the NOD is filed. This is when the actual sale date is set. It is a notice to you and the world that the property is scheduled to be sold on a particular date. That date will typically be 14-20 days from the date the NTS is filed depending on your state. If you add the time up there are basically 111 days from the time a property enters foreclosure (NOD status), until the day it is sold. Usually. an announcement is posted on the property.
Step 4 – Expiration of Right to Reinstate Loan – All the way up until this point, you have the legal right to reinstate your loan, and continue to abide by its original terms. More simply put, this means that you can pay off all of your back payments, and penalties, and then go back to paying your old monthly payments. 5 business days before the sale date however, your Right to Reinstate will expire. At that point, you could walk up to your bank’s accountant with a cashier’s check, and they don’t have to accept your money. Now, these days, banks have been known to accept money and reinstate the loan even the day of the sale, but it’s important to know that they don’t have to.
Step 5 – Trustee’s Sale. As early as the 111th day after the Notice of Default was filed, the home can be sold at public auction to the highest bidder. In Trust Deed states like California, there is no redemption period in which you can reclaim the property. In other words, once it’s gone it’s gone. There are a whole slew of attorneys who would have you believe that they can get the house back for you after the fact by “unwinding” the foreclosure. The fact is that this is extremely rare, and usually a waste of time, possibly a waste of money, and almost always a set up for falsely raising your hopes, and following up with big disappointment.
There are more subtle parts of the process, but these are the most relevant ones for homeowners. If you have a grasp of these steps, it helps put things in perspective, and allows you to make educated choices when planning your way out of the foreclosure mess.