Mortgage lenders are in the business of accepting your payments, not refusing them. However, after missing several payments, you may reach a point when your lender stops accepting payments, rejecting your efforts to bring the loan current. This may happen if it starts the foreclosure process and is intent on taking possession of your home, or if you wait too long to pay up. The lender can proceed with foreclosure, even if it accepted payments, if you fall short of paying off the amount you owe.
After Notice of Default
You know the lender has officially started the foreclosure process when you receive a Notice of Default or other formal notice, depending on your state. In California, a state where lender's don't necessarily need a court's approval to foreclose, you get an NOD, which gives you 90 days notice to bring the loan current. If you don't pay, you receive a Notice of Trustee Sale to take place 20 days later. You have 5 days before the sale date to bring the loan current. In judicial foreclosure states, such as New Jersey, the lender needs court approval to foreclose. The lender files a lawsuit to proceed and you can pay the balance owed to get current until the judgement date.
Reinstating Your Loan
You can bring your loan current and stave off the foreclosure sale filing by paying the past due amount, plus penalties. This process is known as reinstatement and it's usually what the lender wants you to do. When you reinstate, you pay off the mortgage arrears, interest, late fees, lender attorney fees and the price of any inspections or other costs the lender racked up in the foreclosure process. The lender or its attorneys act as collectors and generally won't settle for payments short of what you owe -- the amount stated on the most recent notice -- if it can help it. You typically have to reinstate at least 5 days before the lender's deadline or risk the lender rejecting your payment and proceeding with a sale.
Redeeming Your Home
If you miss the reinstatement deadline but still want to keep your house, you have to pay the home off in full. The lender won't accept anything short of the loan balance plus fees and penalties once you reach this point. You can redeem ownership of your home during the redemption period for a limited amount of time. In a non-judicial foreclosure state, you have a shorter period of time, right before the Trustee Sale date, to redeem. In judicial foreclosure states, you have time before and after the sale. Michigan, for example, has a six-month post-foreclosure redemption period.
Modification Before Foreclosure
You can prevent foreclosure by working out a repayment plan with your lender. In a loan modification, the lender lowers your monthly payments to a manageable level and may even forgive a portion of the balance. Requesting a modification can also pause the foreclosure clock. Under the government's Home Affordable Modification Program, or HAMP, a participating lender can't simultaneously pursue foreclosure and review you for a modification. The lender expects you to remit at least three trial payments under the modified plan before giving you a permanent modification and ceasing any foreclosure actions.
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