If you don’t fight your foreclosure or take any steps to avoid foreclosure (see our article on foreclosure avoidance options), the foreclosure will move forward on a schedule dictated by your lender’s workloads and policies and the laws of your state. Specific information for your state is in our Summary of State Foreclosure Laws.
The single most important point to understand is that you don’t have to leave your house just because the lender has started foreclosure proceedings. In most states, you’ll probably be able to stay long enough to plan for the future by saving all or some of the money that you’re no longer putting toward the mortgage.
EXAMPLE: Joshua and Ellen got in over their heads and now can’t afford the $3,000 monthly payments on their first, second, and third mortgages. They decide to let the house go. They turn to their state’s foreclosure laws to see how much time they have. They learn that:
- They can go three months without making payments before they will receive what’s called a notice of default in their state. This notice gives them an additional three months to make things right. If they don’t (and remember, they plan to let the house go), they will have another 30 days’ notice before the house is sold.
- They can file for Chapter 7 bankruptcy and delay the sale by three more months. Bankruptcy will also let them leave without owing the lender anything.
- After the foreclosure sale, they’ll probably be able to stay in the house for at least two to three months.
Altogether, they will have at least a year of living in the house without making payments, and if they can save at least $2,000 a month, they will have roughly $25,000 in the bank when they set out to seek new shelter.
Although quickly dropping home values make it increasingly unlikely, you may have some equity left in your home. If you do, the longer you can stay in it payment free, the better chance you have of pulling some of your equity out before finding new shelter. Just do the math: If you have $20,000 equity, your payments are $2,000 a month, and you can stay in the house without making your loan payments for 10 months, you will have succeeded in pulling out $20,000 in equity, so to speak.
How much time you’ll get to remain in your house and how much money you can save (or, if you have any, equity you can pull out), depend on these factors:
- the amount of notice you are entitled to receive before the lender begins foreclosure proceedings
- how soon in the whole process you decide to stop making payments
- whether judicial or nonjudicial foreclosure is used in your state (judicial foreclosures usually take longer than nonjudicial ones)
- how much notice your state’s law gives you to leave the house after the foreclosure sale (typically, 15 to 30 days)
- whether part of your strategy involves filing for bankruptcy before the foreclosure sale, which provides an additional two to three months’ delay, and
- if you file for bankruptcy, how much money you can keep under your state’s exemption laws—it varies from nothing to $50,000.
Your state’s page in our Summary of State Foreclosure Laws will give you an estimate of how long you can remain in your home, as well as how much money you'll be able to keep if you file for bankruptcy. The most unpredictable factor in arriving at this estimate is whether your foreclosing bank is on the ball in finding new owners for its foreclosed properties or will just let the house sit there unsold whether or not you move out.