First missed payment: 0-15 days Most lenders have a 10-15 day “grace” period on late payments before any damage is done to a borrower’s credit score. There may be a late fee on these payments. There is time for the owner to sell the property through the SFR specialists and recover the property’s equity.
First missed payment more than 15 days late: 15-30 days
There will be a late payment fee. Most lenders will report this as a late payment to the credit agencies. The borrower will receive a letter stating they have missed a payment. There is time for the owner to sell the property through the SFR specialists and recover the property’s equity.
Second missed payment: 31-60 days
The borrower now has two late payments on their credit score. Late charges are accumulating on the missed payments. Federal mortgage servicing laws require the servicer to attempt to contact the borrower by phone to discuss foreclosure alternatives no later than 36 days after a missed payment. At 45 days delinquent, the lender will start sending out letters called “demand letters” or “first right to cure default” letters. This is called the “loss mitigation” phase. This is a serious matter. The borrower is now in default and in pre-foreclosure. There is still time for the owner to sell the property through the SFR specialists and recover the property’s equity. The SFR specialists can negotiate with the lender to possibly stall the foreclosure process due to the property being listed on the local “multiple listing service” or MLS. This action proves that you are taking a proactive role in your finances. You cannot list your property “For sale by Owner” and expect a moratorium on the process.
Third and fourth missed payments: 60-120 days
At 120 days delinquent, the borrower is subject to foreclosure. The lender has likely turned the account over to a collection agency or attorney to collect the debt. This person is called a “foreclosure trustee” or “successor trustee”. A foreclosure date has likely been set. The late fees are still being assessed. The trustee is also charging handling fees, usually $5,000-$7,000. The borrower owes this new debt and will have to cover these costs to fully redeem the loan. The trustee will begin the first of three notices publicly announcing the debt is in default, this is usually in a local newspaper. The notices will trigger the investors and attorney(s) or their assistants to contact the borrower directly. These investors will offer to purchase the property ahead of the foreclosure- for pennies on the dollar. In this instance, the investor will capture the equity in the property. In exchange for an empty, undamaged property, some investors will negotiate a cash “walk away” offer as an incentive to the desperate seller. The SFR specialists will also have a list of investors who can offer to purchase the property for cash within the remaining time before the courthouse sale. The benefit to the home owner/borrower is that a foreclosure will not appear on their credit score. The few late payments will however remain on the report. To rebuild a credit score from a few missed payments will only take a few months of “on time” payments moving forward. A foreclosure on a person’s credit report will take 5-7 years to correct.
The foreclosing lender or trustee must mail a foreclosure sale notice to the borrower no less than 20 days before the foreclosure sale, and after the third public published notice, the foreclosure is approved for sale and the property is sold on the courthouse steps to a new owner for the amount owed plus any bid above this amount. The buyer must have CASH the day of sale. After the end of the sale, the previous homeowner/borrower no longer owns the property.
If the property is occupied, the new owner will serve notice of the ownership change and give 10 days for the occupant/previous homeowner to vacate the premises. If they do not comply, the new owner will serve the previous owner with an “evection notice” or activate an “abandonment clause”. The contents of the property are then removed under the supervision of the County Sherriff. All equity in the property is lost.
Can a borrower reclaim the property after a foreclosure?
Some states have a “redemption period” for the person foreclosed on to reclaim the property if they can come up with the entire amount owed including the additional collection fees. In Missouri, if the lender purchases the home at the foreclosure sale, the redemption period lasts for one year (There are notice and bonding requirements on this clause). If the property is sold on the courthouse steps to anyone other than the lender, or sold independently before foreclosure, the sale is final.
Will a borrower still owe money if the property is sold?
If the property brings less than the amount owed, the original owner still may owe that amount to the lender, plus any accumulated fees from the collection parties. This is called a “deficiency balance”. To get a “deficiency judgment”, the lender has to sue the borrower after the foreclosure. Once the lender gets a deficiency judgment, the lender might try to collect on it by, going after the borrower’s paycheck through a wage garnishment or attach your bank account with a levy.