How Foreclosures Work


Homeowners lose their house in a foreclosure.
If you find yourself unable to pay your monthly mortgage over an extended period of time, you could find yourself facing foreclosure. When you finance your home loan with a bank, you make a promise to pay according to very specific terms. Unfortunately, unexpected circumstances can arise that keep you from being able to handle those payments. If you fail to make payments over a period of time, the bank may take away your home.

Missing a Mortgage Payment

The foreclosure process starts with missing a mortgage payment. There are several reasons why homeowners may be unable to make their monthly payments. A job loss, mounting medical bills and divorce are just a few reasons that could lead to missing a payment.

Notice to Accelerate

As soon as you miss your first monthly payment, the bank will begin foreclosure proceedings by sending you a letter asking that you submit your payment immediately. If you are more than 60 days late with the payment, the bank will send you a Notice to Accelerate. The notice demands the full amount of the past due payment along with any late fees. At this point the bank will not accept a partial payment ; it will issue a due date to receive the payment. If the bank does not receive its money, it will initiate foreclosure of your home.

Demand Letter

If you do not make the payment by the due date noted in the Notice to Accelerate letter, the mortgage company will hire an attorney to contact you. The attorney will send you a Demand Letter informing you that if the mortgage is not made current, the foreclosure will be filed with the court system.

Notice of Default

If after receiving the Demand Letter you are still unable to make the required payment, the bank will move forward and file foreclosure with the court. You'll receive notification in the form of a court document called a Notice of Default. The document will give you 20 to 30 days to respond and bring the mortgage current.

Notice of Sale

This is the last step of the foreclosure process. If the time period extended by the Notice of Default goes unmet, the bank's attorney will file a Notice of Sale. There will be a sheriff's auction date set when the home will be sold to the highest bidder at a deeply discounted price. Before the auction there is still time to stop the foreclosure. The bank would rather you keep the home since it will take a financial loss by auctioning it for sale. The bank gets more money if you are able to make the monthly payments.

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