As more and more Americans face foreclosure, many are asking the question, “What happens when I stop paying my mortgage?” Here we answer in detail.
Stop Foreclosure Help: What Type of State Do You Live in — Deed of Trust or Mortgage State?
What happens when you stop paying your mortgage depends on which type of state you live in, ie, a deed of trust state or a mortgage state. Why? Because lenders collateralize home loans in one of two ways — as a trustees deed, or as a mortgage.
Trustees Deed Defined
A deed is the physical document that transfers the title of a property to another party. trustee’s deed is a deed is the document (deed) executed by a person serving as a trustee — of your home in this case. Trustees can be attorneys, title companies or other entities. It doesn’t really matter because they can’t act unless/until a lender tells them to start the foreclosure process — and provide proof that you are in default.
How the Home Foreclosure Process Proceeds Under a Trustees Deed State?
When you stop paying your mortgage, a lender can foreclose at any time. How they foreclose depends on whether you’re in a mortgage state or a deed of trust state.
In a deed of trust state, there are two situations where the lender can start foreclosure proceedings:
(i) Notice of Default: When you miss one payment, you are legally in default on your home loan. But, most lenders won’t do anything until you are e at least 90 days late. Then, the trustee — on direction from the lender — files an NOD; Notice of Default.
This is simply a notice that alerts you, the homeowner, that if you don’t become current with your mortgage, they intend to start the next stop — posting a notice of sale.
(ii) Notice of Sale: This is when the lender instructs the trustee to set sale date for your home. How long it will take for a sale date to be set and carried out varies by state. It can be as few as 30 days, or as long as 6 months or more.
In today’s foreclosure-ridden market, not uncommon for this period to be four to six months or longer.
When a property goes to sale in a deed of trust state, there is no right of redemption, which is a major difference between a mortgage state and a deed of trust state, which brings us to how foreclosures happen in “mortgage states.”
What is a Mortgage?
Basically, the foreclosure process is the same as in a deed of trust state, with two glaring exceptions: the aforementioned right of redemption and judicial/non judicial foreclosure.
Stop Foreclosure Advice: The Difference Between a Judicial and a Non-Judicial Foreclosure
When a borrower doesn’t pay the mortgage, the lender has the right — and the power — to foreclosure on the property and sells it to recoup monies owed to them. In a mortgage state, they must go through the court system to start this process. This makes it a judicial foreclosure.
In deed of trust states, the foreclosure process is a non-judicial one. This means, the lender doesn’t have to go through the courts in order to properly foreclose. This makes it easier for lenders to foreclosure because the foreclosure process often quicker, easier and less expensive.
Stop Foreclosure Advice: What is the Right of Redemption
The second major difference between mortgage states and deed of trust states is what’s known as a right of redemption period. This regulation that allows homeowners who’ve been foreclosed upon a period of time to “redeem” their property — even after it has been sold.
The right of redemption period varies by state. Only mortgage states have rights of redemption periods. Deed of trust states do not. Once a home is sold in a deed of trust state, the sale is final.
Stopping Foreclosure: A Timeline — Why It Takes a While
The foreclosure process can take anywhere from 30 days to a year or more once you break it down, ie:
90 days to Miss Initial Payments: 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 had 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.