Mortgage Default

• When owning a home, your full mortgage payment is due on the first of the month. The payment due date comes alongside a 15-day grace period. You will owe late fees if the lender has not received your full mortgage payment by the time the grace period expires. After 30 days of missed payments, your mortgage falls into default and the pre-foreclosure stage begins. At that point, the lender will also report your mortgage default to the major credit bureaus.
  
  

Pre-foreclosure

• The pre-foreclosure stage may last for a total of 150 days. In pre-foreclosure, the mortgage is in default, but the home has yet to be seized and auctioned off. During pre-foreclosure, communications between you and the lender should increase. Lender representatives will call you on the telephone, seeking an explanation for your missed payments. You will also receive a notice of default and a demand letter in the mail, instructing you to make arrangements to bring the loan current immediately.
  
  

Strategy

• During the pre-foreclosure stage, you may attempt to negotiate a loan modification through the lender to save your home. A loan modification should result in an affordable monthly mortgage payment -- due to permanent reductions in your mortgage principal balance and interest rate. The lender, however, is not obligated to agree to a loan modification. If you cannot secure a loan modification, you will be forced to put your home up for sale and raise cash for paying off the mortgage. The sale may be further complicated in a negative equity situation -- when you owe more on the mortgage than the value of your property. You could then work out a short sale deal, where the bank settles for less cash than the mortgage principal balance due. Be advised that a prospective buyer may demand small discounts to market value when making an offer on your pre-foreclosure home.
  
  

Foreclosure Auction

• After 180 days of missed payments, the lender will post a notice of sale in the local newspaper to auction off the home if no deal materializes during the pre-foreclosure stage. The notice of sale announces an auction date, time and place for the sale of your home. The home is usually auctioned off within 30 days of the notice of sale. At auction, your home may be sold at a deep 20 to 40 percent discount to market value. If a buyer does not emerge to make a successful bid, the bank will reclaim the property as real estate owned. After the auction, the bank or the home's new private owner can file an eviction lawsuit to have you removed from the property.