One of the most common questions homeowners ask is: "What happens if I don't pay my mortgage on time?"

The short answer is this: You are a step closer to foreclosure after you are unable to make your mortgage payments.

The process of foreclosure is similar to navigating a small boat into a waterfall. Although it may initially appear frightening, there are a few steps you can take to save yourself from losing your mind. To let you know what to expect, we will break down the lengthy and complex foreclosure process for you and discuss a few potential outcomes.

It's best that we quickly go over what a mortgage is, regardless of whether you're reading this out of curiosity or seeking an explanation as you start the foreclosure process.

Once more, what is a mortgage?

A mortgage is a commitment to repay a loan over a predetermined length of time plus interest. Your debt remains unpaid if you are unable to pay back a loan, such as your mortgage. To partially pay off that loan, your lender will take back your home. They have the right to reclaim your home because it is security for the loan.

Judicial and non-judicial foreclosures are the two primary categories of foreclosures.

Judicial Foreclosure

A judicial foreclosure occurs when the court system manages the majority of the foreclosure procedure. The lender must sue the borrower to start the foreclosure procedure. In this instance, the borrower can challenge the foreclosure in front of a judge. The majority of foreclosures in some states (to be mentioned below) are judicial. Be advised that if the lender sues the borrower, even non-judicial foreclosures may turn into judicial foreclosures.

It's also important to realize that the courts manage the final sale in a judicial foreclosure.

States where judicial foreclosures predominate:

(Take note: The foreclosure process may have been expedited in some judicial states as well.)

• Connecticut
• Delaware
• Florida
• Hawaii
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Maine
• New Jersey
• New Mexico
• New York
• North Dakota
• Ohio
• Oklahoma (upon borrower’s request)
• Pennsylvania
• South Carolina
• South Dakota (upon borrower’s request)
• Vermont
• Wisconsin

Non-Judicial Foreclosure

When a lender chooses to foreclose without going through the legal system, this is known as non-judicial foreclosure. The borrower challenges the lender in court, making this kind of foreclosure proceed faster than judicial foreclosures, which might take a year or longer to complete.

The duration of a non-judicial foreclosure can be as brief as sixty days or less, therefore, unlike judicial foreclosure, it concludes with a home auction held by a private third party instead of the courts.

Please be aware that foreclosure processes vary from state to state and even within U.S. states. For instance, all foreclosures in Florida real estate require a judge's approval and typically entail court appearances and other legal procedures.

The lengthy foreclosure timeline can be greatly shortened in Massachusetts real estate, where non-judicial foreclosures are more common because the lenders are not required to go through the court system. Although the borrower can typically involve the courts if they so desire, doing so will almost certainly require legal assistance.

Examine the mortgage documents negotiated with the lender to see whether you will face judicial or non-judicial foreclosure if you fail to make your mortgage payments. If your loan is based on a deed of trust or the lender includes a power of sale, the foreclosure process may begin non-judicially, but you can still file a lawsuit to make it judicial later.

The Foreclosure Process

Step 1: The Grace Period

Don't freak out if you're a few days behind your payments because you have to pay for something pricey out of the blue or your salary didn't arrive on time.

Even though you can be up to 120 days behind on your mortgage payments before the actual foreclosure process starts, the major wheels of foreclosure usually don't start turning until 15 days after you miss your payment.

After this, if you are positive that you will not be able to make your mortgage payments within those fifteen days, call the lender right away and inform them while you still have time.

Step 2: The Warning Shot(s)

On the sixteenth day after your missed mortgage payment, you will receive a letter or other correspondence from the lender verifying what you already know: you have missed a payment.  

Although paying your mortgage at this phase will likely result in a late fee, it's still far better than having your house foreclosed upon at this point in the process.

Along with that warning letter, the lender usually includes a specified date and amount to be paid. Your lender will typically allow you to catch up but at a cost. Hire a lawyer if you can and begin negotiating what are known as loss mitigation options—that is, ways to satisfy the lender without them foreclosing on your home—if you are positive that you will not be able to continue making mortgage payments. These will be discussed in step three.

Step 3: Pre-Foreclosure

Although foreclosure is likely at this point, there are still ways to mitigate your losses and keep your home. Let's review a few of these.

• Forbearance:  Seek a mortgage forbearance if your financial situation is really poor. For a predetermined period, the lender will forbear your payments, allowing you to improve your financial situation and accumulate money. Because you are not missing payments, forbearance won't affect your credit score. Additionally, forbearance only delays the due date; it does not eliminate the payments you are deferring. To stabilize your credit and finances while you negotiate future choices like a loan modification or refinance, it can be better to obtain forbearance first when discussing loss mitigation options with your lender. If you have a government-backed mortgage, such as a VA or FHA loan, you may be eligible for forbearance.
• Loan Modification: In other words, you can renegotiate your monthly payment amount, typically at the expense of extending your loan's term. The lender will take smaller chunks of your money at a period, which should help you get back on your feet in the long run. Even though this will negatively impact your credit at first, it will eventually improve if you can continue to make payments on schedule.
• Short Sale: A short sale is, in essence, the sale of your house for less than its market value to settle some of your mortgage obligations.
• In 99.9% of cases, short sales will pay off all of your debt. But occasionally, you may still owe the lender money, which is known as a shortfall. If the lender is successful in obtaining a deficiency judgment in their favor, they will be able to collect their debt from you either by levying your bank account, which means the lender will take the necessary funds out of your bank account, or by wage garnishment, in which your employer will set aside a portion of your wages or salary to pay the bank.
• Deed Instead Of Foreclosure: This is more of a pain reliever and last resort than a true cure. The lender will still seize your home if you choose this option and work out a deed instead of foreclosure, but you will be released from making the remaining payments.
• Although it is not anyone's first pick, it is still possible. If you want to use the Deed instead of the Foreclosure option, obtain written confirmation from the lender that they will waive your shortfall.
• The amount you would still owe the lender is known as a shortfall. The goal of the lender forfeiting the foreclosure would be defeated if you have your deficiency waived and are still required to repay them after transferring the title.

Step 4: You Get A Notice of Default and a Notice of Sale

The actual foreclosure process will start if all negotiations are unsuccessful and you are unable to make your mortgage payments within the pre-foreclosure loss mitigation period. The lender will first send a notice of default to the relevant civic body, usually the county recorder's office. You will also receive a notice of default, depending on the state in which you reside.

You'll receive a Notice Of Sale detailing the date the lender will put your home up for sale or auction, either concurrently with or immediately following this Notice of Default. You still have the opportunity to reside in your house and pay off your debts to "cure" the default during the period between the Notice of Default and Sale and the actual sale of your house.

Your house will be sold if you are unable to correct the default within the given period, which in a judicial foreclosure may be several months, and in a non-judicial foreclosure, it may be much shorter.

Step 5: Your House Is Sold

The house is put up for auction during a foreclosure sale, and typically the lender is the highest bidder because they are using your current debt as credit to purchase the home. For the homeowner, this is the end of the road in several states. In others, you have one more chance to reclaim your house.

Step 6: The Post-Sale Redemption Period

Certain states allow you to stay in your property after it has been sold for a predetermined amount of time, during which you may even be able to purchase your home back from the lender or the other buyer. The Redemption Period may begin before or after the house is sold, depending on the state. In certain situations, it may begin during the sale process. With some restrictions, the majority of states permit redemption periods.

Listing the states where foreclosed homeowners are not eligible for redemption periods is more beneficial. They are:

• Delaware
• Georgia
• Idaho
• Indiana
• Louisiana
• Maryland
• Massachusetts
• Mississippi
• Nebraska
• New Hampshire
• New York
• Oregon
• Pennsylvania
• Utah
• West Virginia
• Wisconsin

You have a chance to redeem your house wherever else.

Don't give up if you find out that you are unable to make your mortgage payments. You can choose to keep your house and halt the foreclosure process. With a skilled lawyer and a little perseverance, you may stay in your house and save your credit score.

In many circumstances, you have years to negotiate with your lender.

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