I Received a Notice of Foreclosure. Now What?

Embarking on a home purchase, you never imagine it ending in foreclosure. But life happens. The mortgage crisis that began in 2008 wrought upheaval for millions of homeowners and made foreclosure something that could befall anyone. Nationwide, foreclosure numbers have decreased significantly since peaking in 2010, though they remain sizeable. Nationally, the average is around .23 percent. Moreover, there are concerns that a crisis could recur due to banking industry practices such as subprime lending.

When you finance a home purchase, you don’t actually own your house outright until the last payment is made. If you fall behind, the mortgage agreement states that the bank may reclaim your house through the foreclosure process.

Nine Steps in the Foreclosure Process

The steps of the foreclosure process are different in every state. Moreover, the timeframe from initial notice until you’re required to move from your home can vary considerably depending on how you respond. A mortgage company doesn’t simply foreclose overnight.

An unopposed foreclosure (where you don’t fight the process and simply allow it to run its course) can take as little as eight months, while a contested one can run up to 18 months or longer if put on hold.

Taking Illinois as an example, the general steps to foreclosure are:

1. Default

The first event to trigger a foreclosure is default on the loan. Your lender will send you several notices of default and missed mortgage payments, and is required to make efforts during this time to explore options like modification or a payment plan.

At this point, you can still pay up what you owe and avoid foreclosure proceedings. Once you receive a “Notice of Acceleration,” the bank no longer has to accept monthly payments and can demand that you pay the entire loan.

2. Notice of Mortgage Foreclosure

When your loan is 120 days delinquent, the lender will serve you with formal court documents stating that a foreclosure action has been filed. These documents must include a copy of the promissory note and an affidavit verifying the mortgage loan amount due. A court date in which you are required to appear will be set.

If you want to fight the foreclosure procedures, you must take action at this time. Most Illinois counties have a foreclosure mediation program, a free service that will assist you in negotiating with your mortgage lender. In most cases, the period of time you’re in mediation will “stay” (put on hold) the foreclosure process.

This is also the time to enlist the assistance of an attorney for legal advice, as you’ll need to file an answer and assert any defenses to the foreclosure (or request an extension) within 30 days of being served. Note that if you appear in court or file an answer, the mortgage servicer is required to prove that they have exhausted all efforts to work things out with the borrower.

3. Judgment

A hearing will be held and judgment entered. The court will order the sale of the property to the highest bidder.

4. 90 Days to Reinstate

You have 90 days from the date you were served with the notice of intent to foreclose to reinstate your mortgage. This means you can make late payments for what you owe on the home loan (including late fees and foreclosure expenses), stop the foreclosure, and resume your loan payments. After 90 days, the lender may still accept payment and reinstate the mortgage, but they are not required to do so.

5. Seven Months to Redeem

You also have seven months from the date served (or three months after a judgment is entered, if later) to sell the house, refinance or pay the loan in full.

6. Judicial Sale and Confirmation

Once the redemption period has lapsed, notice of sale must be published for three weeks and the house will be auctioned. The bank frequently buys the property.

7. Special Right to Redeem

If the sale price at auction is less than what you owed, Illinois allows you the opportunity to repurchase your house at that price. To do this, you must pay all interest, fees, and foreclosure costs.

8. Eviction

Once the sale has been confirmed, the judge will enter an order of possession, usually giving you 30 days to move out of the home. If you have a homeowners association, you’re still required to pay your dues while your foreclosure is pending—if you don’t, the HOA can evict you from your home much faster than the foreclosure process.

9. Deficiency Judgment

In Illinois, even after the entry of a confirmation of foreclosure sale, you can still be on the hook for the difference between what the property sold for and the amount you owed on the mortgage.

Defenses, Delays, Mitigation Options to Foreclosure

When you first receive a notice of foreclosure, there may be defenses you can raise or actions you can take to forestall, if not avoid, foreclosure. Possible options include:

• Repayment Plan
• Forbearance
• Loan Modification
• Bankruptcy Filing (Chapter 7 or 13)
• Deed in Lieu of Foreclosure
• Short Sale
• Lack of Standing or Jurisdiction
• Violation of Consumer Fraud, Deceptive Business Practice, or Truth in Lending laws

Keeping your home may not be the result you need if a more permanent financial setback makes it likely you’ll default again.

Find an Experienced Attorney

Foreclosure laws are complex, and decision-making at this time can be hard to navigate on your own. Working with a law firm or an attorney experienced in the foreclosure process as early in the process as possible can help ensure that you get the best outcome for you.