It can feel scary to be behind on mortgage payments, especially when you feel like you don’t know what’s coming. You can’t rely on your mortgage lender to explain everything that is about to occur as they move forward with the foreclosure process.
If you know you’re facing foreclosure, having a consultation with a foreclosure attorney is always a good idea. If that’s not possible, keep reading, get prepared, and learn what may be coming down the line.
Generally speaking, the foreclosure process looks like this:
- You start missing mortgage payments
- The lender starts calling you and mailing you letters in an aggressive manner to try and collect the missed payments
- If you don’t respond or pay the payments, they will “flag” your file in their system as a “foreclosure” file
- The bank will connect with their foreclosure attorney’s office or a foreclosure Trustee
- You will receive any “pre-foreclosure notices” required by your state’s laws
- You will receive a “Notice of Default” or a “Default Letter” that is usually publicly recorded
- If you’re in a “judicial foreclosure” state, you will have a hearing and go through some court proceedings so the bank can receive the permission they need to foreclose on the home and sell it at a public auction
- If you’re in a “non-judicial foreclosure” state, you will likely receive a Notice of Trustee Sale that sets a public auction date against the home
- If the foreclosure does not get resolved, the home will likely be sold at a public auction to a third party buyer (or it will revert back to the bank if no one buys it)
- You will then have to move out of the property – the timing of this depends on your state’s laws. In Washington, homeowners have 20-days following the public auction to vacate the home.
- If you are in a state that offers you a redemption period, you may be able to pay back everything you missed and undo the foreclosure
- Lastly, the foreclosure will then get reported to the credit bureaus, usually impacting your credit score for about 7 years
Determine whether you will be facing a judicial or non-judicial foreclosure
The type of foreclosure you’ll be facing differs based on what state you’re in.
The first thing to figure out is whether you will be facing a judicial foreclosure or a non-judicial foreclosure.
A judicial foreclosure happens within the court system. You will be formally served a summons and complaint from your bank once they begin the foreclosure process. You will have an opportunity to respond to the complaint in court. At the end of the process, in order to foreclose, the court will issue an order allowing the bank to proceed with the foreclosure auction of the home.
A non-judicial foreclosure happens outside the court system, through a series of foreclosure notices issued by a foreclosure Trustee (a company or law firm in your state retained by your lender to execute the foreclosure). At the conclusion of a non-judicial foreclosure, the home is sold at a public auction. A third-party will purchase the home or nobody will purchase the home and the property will revert back to the bank.
Whether you are facing a judicial or non-judicial foreclosure depends on your state’s laws. The timelines vary depending on which process you’re facing so your first inquiry is always to figure out which type of foreclosure you’re facing.
The Stages of the Non-Judicial Foreclosure Process in Washington State
Washington State is primarily a non-judicial foreclosure state for residential homes.
As soon as you miss one payment, you will receive “acceleration notices” and “collection calls”
Prior to any actual foreclosure activity happening – the bank will try to collect the missed payment(s).
You can expect to be bombarded with scary letters and aggressive collection calls from your lender.
You can expect a large amount of unpleasantness during this time period. Sometimes, lenders hire companies to call you repeatedly until you pick up. Sometimes, calls come late at night or early in the morning and sometimes, they call from a blocked number to trick you into picking up the phone.
This part of the process is considered the “early” stages of foreclosure.
After the bank tries to collect the missed payment(s), they will send you a Notice of Pre Foreclosure Options (NOPO)
Around the time when you miss your second payment, you will receive a Notice of Pre Foreclosure Options (a NOPO). This is considered the “initial contact letter” sent by your lender to formally notify you that you are in default on your mortgage. This is considered the “first” step in the foreclosure process.
The NOPO is several pages long. It tells you that you’re in default and that the bank is moving forward toward foreclosure. It will usually say IMPORTANT RIGHTS FOR HOMEOWNERS in all capital letters at the top of the first page.
The most important thing it tells you is that: you have a right to “meet and confer” with your lender.
Once you request a “meet and confer” meeting, the lender has to hold off on issuing the next notice (your Notice of Default) for 60-days.
(If you want more information on what to do to request this meet and confer appointment, what to expect at the meet and confer and what this meeting does, you may want to contact an attorney to go over this with you).
You will receive Notice of Default (NOD) taped to your door and sent to you via certified mail
After the NOPO is issued, you will receive a Notice of Default.
You can identify this notice because:
- It will say Notice of Default in bold letters at the top of the page
- It will be taped to your door as well as mailed to the property
- It will be issued by a party different from your lender (typically, it will be issued by a Trustee or attorney’s office).
- Some common Trustees you will see written on your NOD in Washington State will be: Quality Loan Service, Aztec Foreclosure, Trustee Corps, Western Progressive, Northstar Trustee, Clear Recon Corp, The Mortgage Law Firm
This notice does NOT set a foreclosure auction date on the property.
This notice contains the following information:
- It tells you who the beneficiary is on the loan
- It tells you who your current lender is on the loan – the lender is called a “servicer” in this document
- It tells you which company or firm in Washington State is handling the foreclosure (the Trustee)
- It tells you how much money is needed to get caught up and reinstate the loan.
MOST IMPORTANTLY: This notice may make you eligible to file for Mediation under the Washington Foreclosure Fairness Act. This is the point in the process where Mediation eligibility becomes available for many homeowners. It is important you check your eligibility for Mediation because Mediation stops foreclosure activity and prevents the bank from filing the next notice (NOTS).
If you have received this, you should contact an attorney for help immediately to find out if you qualify for Mediation.
You will receive a Notice of Trustee’s Sale (NOTS) taped to your door and sent to you via certified mail
If you do nothing, 30-days after you receive your NOD (above), you will receive the Notice of Trustee’s Sale (NOTS).
It is common for more than 30-days to lapse between these two notices but 30-days is the fastest they can give you this notice following your NOD.
A Notice of Trustee’s Sale (NOTS) is the final notice you will receive in Washington prior to an auction date of the home.
The NOTS tells you the date and time that the bank is set to auction your home.
The NOTS must set an auction date 120-days away so when you receive this notice, you are usually 4 months away from a foreclosure auction.
If you have received an NOTS, you still may be able to file for Mediation under the Washington Foreclosure Fairness Act but you can only file for Mediation for 20-days after this notice is recorded.
If you’ve received an NOTS, call for help immediately and have an attorney check on your Mediation eligibility.
After you receive the NOTS, the bank will conduct the Foreclosure Auction on the date stated in the NOTS
If the matter does not get resolved and the auction date does not get cancelled, stopped or postponed – the bank will foreclose on the date listed in the NOTS.
The bank will sell the home at a foreclosure auction to the highest bidder. If no one buys it, the bank will take the property back.
If the bank takes the property back, it then becomes “REO” or “bank-owned” property. After you vacate the home, the bank will list the property on the open market and try to sell it for the most money possible to offset their loss.
Following foreclosure, you will have to move out of the property
Following the foreclosure auction of your property, in Washington, you have 20-days to vacate the home prior to the new buyer or the bank (depending on what happened at the auction) issuing eviction paperwork to remove you from your home.
If you do nothing and do not move, you can expect to be legally evicted by the new buyer or the bank. If you have found yourself in this position, you should do everything you can to move and avoid an eviction. An eviction will be stressful and potentially damaging to your ability to rent in the future.
Some states offer a redemption period where you can pay the bank back and undo your foreclosure
Some states have a period of redemption or “right of redemption” where, following a foreclosure sale, you can pay the outstanding mortgage balance (and all costs and fees associated with the foreclosure) and redeem (keep) your home.
Will I get any money after the foreclosure sale? What happens to the equity?
It is important to understand whether your house has equity in it – meaning, if the value of your home is greater than the amount you owe on your mortgage, you likely have equity in your home.
If you have equity in your home, and do not intend to keep it – do not just let the home go to foreclosure. The reason being – there will likely be surplus funds that you’re entitled to (your money!) following the foreclosure sale.
If the home gets sold at a foreclosure auction and the value of the home is so high that your foreclosing lender gets fully paid off, the remaining money (the surplus funds) that is your money will likely sit with the county court and you will have to retain an attorney to file a motion to release the surplus funds to you.
This can be easily avoided if you sell your home prior to foreclosure. There is really no benefit to just “letting your home go to foreclosure” if you have equity. Instead of doing that, you should consider hiring a Distressed Sale Manager, listing your home on the open market and selling it to recoup your equity.
Then, you avoid the foreclosure on your record and walk away with funds in your pocket.
If my home is underwater, what happens to the remaining balance owed on the mortgage?
An “underwater” home means that there is MORE owed to your mortgage holder (and other creditors) than your home is worth. If this is describing your situation, it is easy to think that it makes no difference if you just let your home go to foreclosure.
But you need to check whether the bank can hold you accountable in your state for your deficiency balance (the remaining amount of debt owed) following the foreclosure sale.
In Washington, if you go through the non-judicial foreclosure process on an underwater property, the primary mortgage holder cannot continue to pursue you for the outstanding debt. BUT, if you have junior creditors attached to the home, they may be able to continue to pursue you for your debt following a foreclosure sale.
If you have an underwater property and cannot afford to keep the home, don’t just let it go to foreclosure. Instead, you want to consider doing a short sale or a deed in lieu of foreclosure with the bank.
A short sale will help you avoid the foreclosure and will ensure that you settle ALL of the debt attached to the home in a manner where creditors cannot continue to pursue you for remaining debt.
A deed in lieu will allow you to transfer ownership of the property back to the bank without experiencing foreclosure.
Just because you’re in the foreclosure process doesn’t mean you’re out of options
You may be able to work out a new agreement with your lender to avoid the foreclosure and fully resolve the default:
- Use the loan modification process to help you achieve a mortgage modification so you can resume mortgage payments and keep your home. An approved and accepted loan modification will stop your foreclosure. If you have a Fannie Mae, Freddie Mac, FHA, VA or USDA loan, there may be government programs to help you achieve a mortgage modification (to keep the home).
- Complete a reinstatement of the past due amounts in order to bring your loan current and keep the home. A reinstatement is a one-time payment in full of all your missed mortgage payments and any related fees. After you reinstate, you then resume your normal mortgage payments. If you’re trying to reinstate your mortgage after you’ve received a Notice of Trustee sale, make sure you ask the Trustee to provide you a reinstatement quote in writing and payment instructions for how they want you to reinstate the mortgage. Follow their instructions exactly (you may have to send certified funds, depending on what your Trustee wants) and there may be a cutoff deadline depending on your state’s laws. For example, in Washington – you can only reinstate if you are over 11-days away from the auction date.
- Negotiate a new repayment plan with your bank to catch up on mortgage payments and keep the home. A repayment plan allows you to resume your regular mortgage payments with an agreed-upon extra amount on top of your regular payment that goes toward the arrears. Once your repayment plan is complete, you continue with regular mortgage payments.
- Short sell your home or deed it back to the bank (because you owe more than the home is worth), there are ways to apply and negotiate approval for a Deed in Lieu or a Short Sale Agreement with your lender. These agreements will help you stop the Trustee Sale and get out of your home before the auction date.
It is important to understand that loss mitigation options like the ones listed above may resolve the matter but that it’s not a guaranteed solution. If you get denied for one of the options above, the bank may still move forward with the foreclosure auction.
Or, if you’re applying too close to a foreclosure auction date, the bank may decline to review your loss mitigation option due to bad timing.
So, if you are considering pursuing one of the options above and have a Notice of Trustee’s Sale, it is always advisable to have an attorney consultation as soon as possible to ensure you make the right decision. If you can’t afford legal advice, check with a housing counselor to see if they can help you stop or delay the foreclosure proceedings.
Avoid the foreclosure by completing an equity sale of your property before the foreclosure sale date
If you want to sell your home and recover your equity, you may want to consider selling the property on the real estate market before your foreclosure auction date.
(If you’re considering this, you may want to partner with a distressed sale manager to handle the foreclosure aspect of the sale as these sales often take place on a tight timeline).
Stop the foreclosure process by using foreclosure defense laws and protections
- For homeowners in Washington State, you may be eligible for Foreclosure Mediation under the Foreclosure Fairness Act. This is a government-help program designed to stop foreclosure so you can communicate directly with your bank. In Washington, you become eligible for Mediation once you receive your Notice of Default (the document that usually comes before your Notice of Trustee Sale). A Foreclosure Mediation stops the foreclosure activity on the property until the Mediation is complete. You can still be eligible for Mediation even if you get a Notice of Trustee Sale but only for 20-days after the Notice of Trustee Sale was recorded. So, it is imperative that you reach out to an attorney or housing counselor as soon as you get your Notice of Trustee Sale document to take advantage of foreclosure mediation.
- You can sue your bank using the foreclosure litigation process if there is some violation of state law. Or, you may be able to sue your bank under federal regulatory laws like RESPA, TILA, the FDCPA and the CFPB. With that said, you want to make sure that you have a valid legal reason for suing your bank before you do so – suing your bank just to get more time in the home isn’t always the best option.
Use bankruptcy to stop the foreclosure process
If you’ve run out of time to work with your lender or servicer, you’ve been denied loss mitigation options, are very close to your auction date, or need to stop the foreclosure sale quickly, you may need to consider bankruptcy to stop the auction.
A Chapter 7 or a Chapter 13 bankruptcy stops foreclosure actions. Once you file Bankruptcy, an ”automatic stay” goes into place which stops the foreclosure. Your mortgage lender can ask the Bankruptcy court to lift the stay (by filing a motion) but even if this happens, you will likely still be able to delay the Trustee Sale for 1-2 months using the bankruptcy process.
A Chapter 13 bankruptcy may also help you keep your home long-term by establishing a payment plan that allows you to pay back the missed mortgage payments over a certain amount of time.
A Chapter 7 bankruptcy doesn’t allow you an opportunity to catch up on mortgage payments or keep the home long-term, so this type of bankruptcy is mostly beneficial in delaying the Trustee Sale and getting rid of other unsecured debt, not in figuring out a long-term solution.
If you’re considering filing bankruptcy, the first step is always to have a consultation with a bankruptcy attorney about your particular situation so you get the best advice.
The foreclosure process can be extremely confusing and overwhelming. If you’re a Washington State homeowner with questions about the foreclosure timeline, what to expect or what you can do to avoid foreclosure, give me a call at (425) 654-1674.