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A delinquent mortgage occurs when payments are 30, 60 and 90 days late. After 90 days, the lender begins the unfortunate foreclosure process. This article outlines and details each of the major steps in the delinquency process.
Mortgage delinquency rates are very low in comparison to the years 2007-2010, which were the core years of the most recent mortgage and financial crisis. Many overleveraged lenders went out of business and millions of homeowners lost their properties in what eventually became an economic recession, being compared to the great economic depression of the late 1920's and early 1930's.
For the most part, we have limped our way out of that crisis into seemingly better times. With this article, you will learn the major processes involved when a mortgage payment becomes delinquent all the way to the last step in the process, otherwise known as foreclosure.
A mortgage payment delinquency occurs when a borrower has failed to make monthly payments required to keep the loan status in good standing based on the terms in the contracts. A mortgage typically becomes delinquent the first of the month following the previous months missed payment from the grace period cut off.
If a mortgage payment with a due date of January 1st, and with a grace period ending January 15th does not receive a payment before February 1st, then this mortgage is technically delinquent by 30 days and will be reflected as such on the borrower's credit report.
Tip: A lender will accept payment after the grace period but before the due date of the following month without a loan being in delinquent status, but the borrower will incur a late charge and other fees as a penalty.
If a borrower continues to be delinquent 30+ and 60+ days, they should expect to receive several letters and phone calls from the lender trying to resolve the issue. Delinquent borrowers have up to 90 days to bring their loan into current status by making all the missed payments. Once a mortgage is delinquent 90+ days, the story changes and life becomes more difficult for all the parties involved.
Once a borrowers mortgage payments become 90+ days delinquent, this is typically when the lender begins the first step in the foreclosure process. The lender will file a Notice of Default (NOD) in this first step. A Notice of Default is a public notice that is filed with a court which states that a borrower is delinquent on their mortgage payments.
At this point, the borrower has 90 days after the lender has filed a Notice of Default (NOD) to repay all the back payments and bring the loan back into current status. If the borrower fails to bring the loan back into current status 90 days after the Notice of Default has been filed, then the lender takes the second step in the foreclosure process by filing a Notice of Sale with the local county clerk or county recorder's office.
If a borrower has not repaid back payments and brought the loan into current status with the lender within 90 days after the Notice of Default has been filed, the lender begins the second step in the foreclosure process, filing a Notice of Sale with the county clerk or the county recorder's office.
A Notice of Sale lists the trustee's name and their contact information. A trustee is a third party who holds the property in trust until a borrower makes the last mortgage payment according to the amortization schedule.
When a Notice of Sale is filed, it is then posted on the physical property. A Notice of Sale is also published in a local newspaper, filed with the county clerk or county recorders office and sent to the borrowers' residence by certified mail. The borrower typically has up to 5 days prior to the sale date mentioned in the Notice of Sale to repay the lender for the entire amount owed to keep the property.
Tip: The Notice of Sale is essentially notifying everyone that a sale date has been set for the lender to sell the property in default to the highest bidder. This is typically done using an "auction" style sale either on the steps or within the offices of a local City Hall or County Courthouse. This is otherwise known as a Trustee's Sale.
A trustee's sale or auction typically occurs three weeks after the Notice of Sale has been filed. All parties wishing to buy the property must pay in cash or cashier's check. The opening bid usually begins with the amount owed to the lender on the note, in addition to any other fees or penalties attached.
The bidding is complete when the highest offer is accepted beyond the minimum amount. At this point, the winning bidder must pay for the property right then and there. In return, they are handed a Trustee's Deed to the property. The winning bidder is the new owner and the borrower in default no longer has any legal claim to the property.
If the trustee's sale is unsuccessful and a minimum amount was not achieved from the bidding, or no one showed up, then a second sale date is set and another Notice of Sale is filed and sent to all parties involved. This process repeats until the property is either sold to the highest bidder above the minimum amount, or the lender takes over the property as Real Estate Owned (REO). At this point, the property has officially been foreclosed upon.
When the property is foreclosed in the sale or auction, the new owners or lender cannot simply change the locks to the property. The previous owner must be served with a 3-day written notice to "quit" (or move out). If the previous owner still refuses to move out after the 3 days then the new owner or lender must go through a formal eviction process getting a court order to take control of the property. This process can take up to several weeks after the foreclosure is complete.
If there are tenants in the house that was foreclosed on who signed a lease agreement with the previous owner, the new owner must honor the existing lease. However, if the lease is up and the tenants are on a month-to-month lease, the new owner has a right to evict the tenants.
At this point, the new owner or lender have two options:
Offer the existing tenants a new lease or rental agreement.
Begin the eviction process. If the new owner chooses to evict existing tenants, the new owner must give the tenants at least 90 days' notice before starting eviction process.
Borrowers with mortgage payments in delinquency should contact a HUD-approved housing counselor for assistance. This is free of charge. The HUD-approved counselor discusses the borrower's options and in some cases may negotiate with the lender on the borrower's behalf. In this case, the counselor can help by arranging payment plans or assisting in a loan modification to keep the borrower in the property. HUD counselors are available regardless of income levels or hardship.
The Housing and Urban Development website provides a list of HUD-approved counseling agencies by state. It's important to note that if you ever find yourself in a delinquency situation with your lender, to get in touch with a HUD-approved counselor as soon as possible so there is enough time to strategize and negotiate.
Once a Notice of Default or a Notice of Sale are filed, they become public record available to anyone wishing to access the information. This is where slime ball scammers begin rearing their ugly heads.
Shady companies and individuals will begin making phone calls and sending letters, often disguising themselves to appear like official government or bank communications. They begin offering borrower's opportunities to save money, negotiate with lenders and stop the foreclosure process. Of course they demand upfront fees or "security deposits" of some sort before they are able to "help."
Tip: These practices are all predatory and never end well. If you ever find yourself receiving such documentation or phone calls and are not certain if they are official, do not call the scammers back or call numbers on the solicitation itself. The best places to call are the HUD-approved counselors or the lender's customer service number directly, usually displayed on monthly mortgage statements mailed to your home.
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