Understanding Mortgage Foreclosure

Foreclosure Relief for Homeowners Facing Mortgage Foreclosure

Mortgage foreclosure is a legal process by which a mortgage holder (called a mortgagee) regains possession of your home after a default. The most common type of default is non-payment. However, a mortgage default may include other things such as failure to pay property taxes, common fees (for condominiums, etc), or to maintain sufficient insurance to protect the interests of the lender.

The exact foreclosure process differs somewhat from state to state, but the real problems usually begin when mortgage payments are 16-30 days past due. Although it is still possible to work out a repayment plan with the lender at that point, many homeowners are not pro-active about communicating with their lender(s) when they are in arrears.

If you default on your mortgage, the mortgagee (or lender) will notify you by mail. You wont be able to avoid foreclosure by claiming you did not read a legal notice, so it is critically important that you read any and all mail sent by your lender. If you do not cure the default, the mortgagee will foreclose by complying with the legal requirements for foreclosure in your jurisdiction. At a minimum, you will get some additional notices in the mail. After the mortgagee takes the necessary legal steps, an official will sell your property at an auction. The best first step in avoiding foreclosure is to read all of the correspondence you get from your lender.

Bankruptcy may provide you with an opportunity to save your home. The United States Bankruptcy laws, particularly as they pertain to foreclosure relief, are currently under review by lawmakers in Congress in connection with the Homeowners Relief Act. Under proposed new bankruptcy laws, bankruptcy Judges or Trustees could have the power to change, or modify, the terms and conditions of mortgages.

Prior to considering bankruptcy it is important that distressed borrowers resolve this question: Will your budget allow you to make the regular monthly mortgage payment if you were current? Would you have enough money left over after paying your regular monthly expenses (including the mortgage payment) that you could cure the mortgage arrears over a 3-5 years. If so, filing bankruptcy and specifically filing bankruptcy under Chapter 13 could save your home.

Lenders may be highly motivated, right now, to offer changes to the terms and conditions of your mortgage through so called "loan modification", as a way to help stem their costs arising from foreclosure.