Stop Foreclosure Help: What Happens When You Stop Paying Your Mortgage


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Unfortunately, it’s not a surprise anymore — more and more Americans are unable to pay their mortgages. Subprime, interest-only loans; loans resetting to higher interest rates, which jacks up the payments; depleted savings; high amounts of personal debt; and the state of the economy have all converged to make foreclosure a real possibility that many homeowners are facing for the first time in their lives.

If you find yourself in this situation, you’re probably afraid and confused about where to get straight answers, or “stop foreclosure help.” Here we’ll explain exactly what happens when you stop paying your mortgage. That way, you can start preparing for the next phase in the process.

Stop Foreclosure Help: The Number One Thing to Remember

What is this? Keep in mind that foreclosure is a process; a process that takes time. How long depends largely on where you live and your financial situation. See this timeline for foreclosure in all 50 states to get an idea.

Your mortgage is a debt that you owe. Lenders collateralize their home loans in a couple of ways – via trustee’s deed or via mortgage. When you default on your home loan, it all depends on how the lender has collateralized the loan as to what type of action they will take.

What is a Trustees Deed?

trustees-deed-filings

A deed is the written document which transfers title (ownership) or an interest in real property to another person. A trustee’s deed is a deed to be executed by a person serving as a trustee in their appointed capacity. A trustee’s deed is often used, for example, by a trustee in bankruptcy to sell real property of the debtor. [Source: definitions.uslegal.com]

A deed of trust involves three parties – the borrower, the lender, and the trustee. The trustee is a neutral third party that holds the actual title to a property until the debt is repaid in full. Then, the deed is conveyed to you – homeowner. Who is the actual trustee? This varies by state; eg, it can be an attorney or a title company.

How the Home Foreclosure Process Proceeds Under a Trustees Deed State

When you stop paying your mortgage – even one missed payment – you are in default and the lender can technically start foreclosure proceedings. Although, it usually doesn’t happen this way. Under a trustees deed, there are a couple of periods that start the beginning of the foreclosure process.

(i) Notice of Default: One is the aforementioned default period. Although you are technically in default after one missed payment, most lenders won’t start any proceedings until you are 90 days late. Then, the trustee can file what’s known as a Notice of Default (NOD).

This notice lets you know that if you don’t become current with your mortgage in a certain period of time, the lender is going to start the formal foreclosure process.

(ii) Notice of Sale: The second period under a trustees deed where you go into foreclosure is the notice of sale. This is more serious, for this is when the lender hires a trustee to actually set a sale date for your home.

This will vary by state, but can be as short as 30 days or as long as six months or more. See the state-by-state list of approximately how long it takes a lender to foreclose on a homeowner – in these economic times (very important to keep this in mind, as these are unusual times).

If the property does go to auction and is sold, there is no right of redemption. The sale is final. At auction, what typically happens if the property doesn’t bring enough to cover what’s owed on the mortgage, the bank buys the home back in what’s called a reserve bid. This reserve bid is always the amount owed on the property.

What is a Mortgage?

When you get a home loan, you sign a document promising to repay the loan. Depending on where you live, this document is either a deed of trust or a mortgage. What’s the difference when it comes to foreclosure?

Unlike a trustees deed, a mortgage involves only two parties – the borrower and the lender. When a borrower doesn’t pay the mortgage, the lender has the power to foreclosure, ie, sell the property. However, the lender has to go to court to start the foreclosure process. This is called a judicial foreclosure.

Stop Foreclosure Help: 2 Big Differences Between a Trustees Deeds State and a Mortgage State

Deeds of trust are non-judicial foreclosures. This means the lender does not have to go through the court system to foreclosure. And, this is one of the big differences between a mortgage state and a trustees deed state.

When a deed of trust is involved, the foreclosure process is often quicker, easier and less expensive than when a mortgage is the security instrument.

The second big difference is what’s known as the right of redemption period. Only mortgage states have these; trustees deeds states do not. Basically, this law allows homeowners “reasonable opportunity to reacquire the property, provided certain guidelines are followed.” This period ranges anywhere from typically 90 days on up to a year; it all depends on what state you reside in and how much the home is sold for.

For example, in California, the period of redemption is 3 months — if the property is sold for enough to pay off the mortgage. If the property doesn’t bring in enough to pay off the mortgage, the redemption period is 12 months.

Stop Foreclosure Advice: How the Home Foreclosure Process Proceeds In a Mortgage State

Basically, the process proceeds the same as explained under the trustees deed states, but with one exception — the right of redemption period, as explained just above.

Stopping Foreclosure: A Timeline — Why It Can Take 5 Months to a Year or More

The foreclosure process can take anywhere from 30 days to a year or more once you break it down, ie:

90 Days. Usually, you get this much time to miss payments before a lender will take action.

30-120 Days: Notice of Default Mailed. This gives homeowners another 30-120 days to bring their mortgage current, or work out some other plan, eg, mortgage modification, forbearance agreement, etc.

30-180+ Days: Notice of Sale. Lender notifies homeowner that a sale date has been set.

If you add all this time up, it’s anywhere from five months to a year or more before you have to vacate your property.

If your financial situation is temporary, this can be enough time to get back on your feet and stop the foreclosure process.

At every stage of the foreclosure process — whether the collateralized instrument is a mortgage or a trustees deed — the homeowner has a chance to save their home. So keep this piece of advice in mind when you are trying to stop foreclosure.

Tomorrow’s Post on Stopping Foreclosure

In tomorrow’s post, we’ll talk more about the Right of Redemption – another tool homeowners are unaware of that they can use to stop foreclosure.

Qualify for a Home Loan, Even with Bad Credit

Has a past bankruptcy, foreclosure, or other bad credit challenge stopped you from applying for a home loan? Need to know how to qualify for a mortgage in spite of these credit challenges? Now you can get the mortgage qualification info you need.

P.S.: Business Opportunity: Learn how to secure your financial future (and retire early) by buying foreclosures cheap.

Learn more about mortgages and deeds of trust in the video below.

Copyright © 2009 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.

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