When you purchase a home by taking out a mortgage loan through a bank, you may assume that you own the house after you have completed the closing paperwork and made your down payment. However, the bank owns the house until you have paid off the mortgage. If you fail to make your mortgage payments as outlined in the mortgage contract, the bank can take your home without your consent.
Preforeclosure
When you miss a mortgage payment, the bank will likely contact you by telephone or mail in an effort to compel you to bring your mortgage account current. If you continue to miss payments, the bank will send you a default letter, which includes a date by which you must pay all past-due amounts, including late fees and other charges associated with your delinquency, to avoid foreclosure. The demand letter gives you an opportunity to bring your account current and prevent the bank from taking your home.
Foreclosure
If you do not bring your mortgage account current by the date stated in the demand letter, the bank may initiate foreclosure on your property. In some states, the bank must obtain authorization from a court to initiate foreclosure proceedings; in other states, the bank may foreclose on your home outside of the judicial system. The bank will then schedule a date for the sale of your home, typically through a public auction. After the sale, you must vacate the home.
Right of Redemption
After the bank has initiated foreclosure proceedings, most states allow you to prevent the bank from taking the home by paying the full balance of the mortgage, plus the bank's legal fees and other costs associated with the foreclosure, before the sale takes place. Some states, such as Alabama, provide an additional right of redemption after the sale -- in Alabama, you can reclaim the home by paying the mortgage balance and foreclosure costs within 12 months after the sale of your home.
Preventing Foreclosure
If you are behind on your mortgage payments, or you anticipate difficulty making your payments in the near future, you can use several strategies to prevent the bank from taking your home. Call your lender to ask about a repayment plan, which allows you to catch up your past-due payments over time. Your lender may also allow a payment forbearance if you have a temporary financial crisis, such as a layoff or unforeseen medical expenses -- the lender will typically defer one or more payments, which means that you will have to make these payments at loan maturity. Lenders also commonly offer loan modifications, which can help make your payments more affordable by reducing your interest rate, forgiving a portion of your loan balance or deferring your past-due mortgage amount.
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