How the Mortgage Foreclosure Process works

The mortgage foreclosure process happens when a homeowner fails to pay his or her mortgage payments and the bank forecloses on the home. A mortgage foreclosure process is not the same as a tax foreclosure process which happens once a year. Mortgage foreclosure is a bigger problem for homeowners who cannot afford to pay their mortgages.

The mortgage foreclosure process is long and involved. Different states have different foreclosure rules and slightly different mortgage foreclosure process. Lenders seeking to foreclose have to comply with state's mortgage foreclosure process which can be costly and time consuming.

The mortgage foreclosure starts when a homeowner misses payments multiple times. The lender usually wait until three payments have been missed before they start thinking of foreclosure. A homeowner can call the lender to agreement a payment plan to avoid foreclosure and avoid being in default.

If the mortgage account is in default, then the lender will send the homeowner a notice of default. This is not a foreclosure notice but if you receive a notice of default, the next one might be a foreclosure notice. Most homeowners are scared but the lenders are often more than willing to negotiate at this point.

About three months into the mortgage foreclosure process, if a payment plan cannot be reached between the lender and the homeowner, then the lender will send a notice of foreclosure and perhaps also the notice of trustee's sale depending on state law. These notices are often served to the homeowner by certified mail or in person by the Sheriff. Public notices are also posted and you will get calls and people coming by trying to see if your home would be a good investment.

In some states, a foreclosure sign is also posted on the property in foreclosure. This is very embarrassing for the homeowner because friends and neighbors can now see how bad the homeowner's financial situation is. Most homeowners are too embarrassed and have moved out of their homes at this point.

Before the auction date or the date of foreclosure sale, the homeowner can still pay off the mortgage balance in full and the mortgage foreclosure process will cease. But, most people cannot find enough money to pay off the mortgage balance. Sometimes, there are loans to stop foreclosure but they are rare nowadays. The last chance the homeowner has to get the home back is about six days before the sale.

When the day of the trustee's foreclosure sale arrives, the lender will auction off the foreclosed home to the highest bidder. This is the final stage of the mortgage foreclosure process when the lender can finally get rid of the property and get some of the money back. Highest bidders are often people looking for cheap homes to fix or move into. Many of them are real estate investors.