What to expect in a foreclosure

By David Colker

Feb. 15, 2009 12 AM PT

Miss a mortgage payment, and the foreclosure clock starts ticking.

In as little as five months, the sheriff could be at the door, ordering you to leave the house that is no longer your home.

But free help is available, including professional legal advice, and a host of ways to stop the clock. Or it might make sense to simply run the clock out, staying in the house at no cost until you’re kicked out. The only inherently bad choices when faced with a foreclosure are delay and denial.

Consider this Foreclosure 101, a package of articles that kicks off an occasional series -- Surviving Recession: A Consumer Guide -- with tools to help you face the economic meltdown.

Included in this chapter are a foreclosure timeline to show how the process unfolds, scams to avoid, free services available to anyone with a mortgage and options for stopping the clock, which might become easier to obtain if a new foreclosure plan comes out of Washington.

If you’re going to fight for your home, start using these tools even before that first missed payment.

Time can go so fast.

It’s possible, under the right conditions, to halt the foreclosure process and keep your home. But you probably would need to show that you have monetary resources or a future prospect, such as an upcoming job or money arriving from a rich uncle, to persuade the bank to put on the brakes.

Alternatively, if the situation is hopeless, you can ride it out, staying in the house until the sheriff comes knocking.

“There is a point where you are just throwing money into a ship that’s sinking,” said Mike Himes, who conducts homeowner seminars for the nonprofit NeighborWorks Homeownership Center in Sacramento.

“I’ve seen people run up $10,000, $20,000 on credit cards to try and save their house, and they lose it anyway.”

For this illustration, let’s say the next payment -- the one that you won’t be able to make -- is due March 1.

February

Act now, before the payment is due, to tell the bank handling the mortgage that the check will not be in the mail.

It’s one of the rare things upon which banks, homeowner advocates and government officials agree: The sooner you take action, the better your chances of finding a way to keep your mortgage alive.

“You want to start right away looking at the possibility of getting some sort of loan modification,” said Debra Zimmerman, an attorney with Bet Tzedek Legal Services, a nonprofit that gives free legal advice to homeowners in Los Angeles County.

More and more, banks are routing preemptive calls from borrowers directly to their collections department to begin evaluating options. But don’t be deterred if you don’t get that far.

“You’ll probably reach customer service,” said Himes of NeighborWorks, “and they will say they can’t help you until you are actually late in a payment.

“But get the call on record” with the bank, and it’s a good idea to keep notes on all your calls, including the date you made them.

March 1

The due date.

If you manage to pay by this date -- or have made an arrangement with the bank servicing the loan -- your mortgage lives to fight another day.

March 2

You’re delinquent.

Even though most mortgages have a no-penalty grace period -- usually up to about 15 days after the stated due date -- the payment is now officially overdue.

But it’s unlikely that any bank would immediately start down the foreclosure road.

The reminder call

The timing of this call from the bank often depends on the homeowner’s payment history. The better the history, the later it comes.

“If a borrower always pays on the 11th, we’re not going to start calling on Day 9,” said Wells Fargo Home Mortgage Vice President Joe Ohayon.

If there’s a history of missing payments, however, the lender could go on the offense early.

“We might start calling on Day 2 of delinquency,” Ohayon said.

For borrowers with a good payment history, the call probably will be more Dudley Do-Right than Snidely Whiplash.

“It will be pretty soft,” Himes said. “Basically, it’s ‘How can we help? What kind of problem are you having?’ ”

Later calls can get tougher.

“They want their money, and they want you to pay them before you pay anyone else you owe,” Himes said. “They will ask, ‘Do you have a 401(k) to cash out? Can you sell your car? Can you borrow money from a relative?’ ”

The 30-day call

Now it’s getting serious.

Under a state law that went into effect in September, banks handling delinquent mortgages must make an informational call or visit at least 30 days before declaring a mortgage in default.

Ducking the call or visit might not delay things. The law allows the lender to move forward if it has made good-faith attempts to contact the borrower.

During that contact the lender is required to discuss possible options for avoiding foreclosure and must provide information on available free counseling.

The borrower has the right to request an additional discussion with the bank within two weeks.

If you haven’t already, it’s time to see a free, certified counselor who can contact the lender and ask for a delay or some other accommodation on your behalf.

But that’s no magic bullet.

Last year, Los Angeles Neighborhood Housing Services provided counseling to about 5,500 homeowners who had gotten into mortgage trouble, according to the agency’s chief development officer, Ester Cadavid.

“About 6 out of 10 families that we saw were not able to stay in their homes,” Cadavid said.

Important note: The 30-day call applies only to loans made from 2003 through 2007, the height of the subprime mortgage boom. For loans made in other years, the bank can move directly to . . .

Notice of default

You are now in foreclosure.

This legal filing -- a copy of which is sent to you -- declares the loan in default and triggers a three-month buffer period.

During this time, the borrower can get out of foreclosure by coming up with the past and current payments owed, plus any late fees and penalties that have accumulated, putting the mortgage back on track.

A loan modification or temporary moratorium could still be approved by the lender at this point.

A short sale, in which the home is sold for less than the money owed on the mortgage, also gets you out of foreclosure, but you would lose the home.

In addition, the lender would have to agree to take the lesser amount, and a buyer would have to be found.

Notice of trustee’s sale

At the end of the three-month period, the lender can file a notice -- a copy of which goes to the borrower and is recorded with the county -- that the house is to be sold.

There is still time.

Under the law, the notice has to be filed at least 20 days before a sale can occur. Up to five days before that sale, the borrower can still stop the process by paying all past and current amounts due on the mortgage, plus penalties and fees.

To avoid getting saddled with yet another foreclosed property, the bank might remain willing to make some sort of payment plan modification, especially if the borrower can demonstrate an ability to resume payments in the near future.

This could be an apt time for a borrower not planning to hold on to the home to file for Chapter 7 bankruptcy protection.

“It can extend the timeline by two, three months,” said Stephen Elias, author of “The Foreclosure Survival Guide.” “It can be a tactical move.”

Although the filing erases some debts, it doesn’t remove your obligation to keep paying on the mortgage if you hope to keep the home. And it puts a major ding in your credit report.

The sale

The house goes up for auction. Traditionally this is done on the steps of a county courthouse, where anyone can bid.

A very-last-minute accommodation is possible, if it looks like the borrower can pay up or be approved for a loan modification.

“It’s not uncommon for a sale to be postponed or canceled right there on the steps,” Himes said.

Otherwise, the house is sold, usually to the lender for money owed if there are no other viable bidders.

Notice to quit

This can be issued as soon as the new owner records the trustee’s deed, giving you three days to get out of the house.

It’s possible you could leave with some cash in your pocket. The new owner might offer an incentive if you’ll get out quickly, without stalling tactics, and leave the house in good shape. In the foreclosure world, this is called “cash for keys.”

If you don’t leave, the new owner can move on to. . . .

Unlawful detainer

You are now being evicted.

This lawsuit gives you five more days to clear out.

But during that period you can ask for a trial, which is supposed to be held within 20 days of the request. The trial is a formality.

“You will absolutely lose,” said Mark Bender, an attorney at Bet Tzedek who specializes in eviction matters.

Notice to vacate

The sheriff comes to your home and posts an official notice for you to move out.

“They nail it right to the door,” Bender said, “just like you see on TV.”

You have five days to leave, and this time it’s final. The date and the time are on the notice.

Lockout

The sheriff returns at the appointed time, and if you haven’t left the house, he or she can forceably escort you out.