Homeowners in record numbers are delinquent on mortgage payments and may be losing homes to foreclosure. And as Bank of America suspends foreclosure proceedings in many states, due to possible fraudulent documentation, it is more essential then ever to have a firm understanding of delinquency and foreclosure as well as methods of avoiding or remedying such situations.
Delinquency
A delinquency, simply defined, is a payment that is one or more days past its due date. Although simplistic in definition, there are varying ways delinquency may affect a homeowner.
Delinquencies can lower a person's credit score, and will usually appear on a person's credit report after the payment is 30 days past its due date. Privacyrights.org, a website providing free financial information, lists payment history as 35 percent of a credit score. A lower credit score can affect a person's ability to obtain credit. Also, delinquent payments may result in the borrower's paying additional interest charges.
Foreclosure
Foreclosure occurs when a loan is significantly delinquent, and the mortgage company seeks to remove the homeowner's property rights, repossess the home and sell the house to recoup the cost of the defaulted loan. The lender may begin foreclosure proceedings after the a borrower has three consecutive delinquent payments. A lender typically informs a homeowner of foreclosure initiation through a demand letter, which details the past-due amount and explains that foreclosure proceedings can be begin.
Although foreclosures may begin after only three delinquent payments, the process typically takes several months; the duration of a foreclosure may also vary from state to state.
There are two types of foreclosure: judicial and nonjudicial. Some states require a judicial foreclosure, which means a lender must sue a homeowner and obtain a court order to foreclose on a home.
A nonjudicial foreclosure is more commonly used and involves a mortgage company's filing of an "election and demand" clause in the county where the property is located. This process avoids court hearings, but it does give the homeowner a few different opportunities to cure (or bring current) the account and retain the home.
Facing Foreclosure
Many homeowners are facing the difficulty and stress of foreclosure. Realtytrac.com, a website that tracks foreclosure trends throughout the United States, currently lists over 2 million homes in foreclosure. However, help exists. Mortgage companies themselves often offer assistance, as they prefer to avoid costly foreclosure. Many lenders now have a variety of programs to help distressed homeowners and -- depending on the situation -- can defer payments, lower payments and interest rates, or even forgive some of the debt. Another important resource for troubled homeowners is the U.S. Department of Housing and Urban Development's initiative called Making Home Affordable (see Resources). This program provides foreclosure prevention, assistance and counseling free of charge.
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