You won't go into foreclosure immediately just because you miss a mortgage payment. Generally, if the property is your principal residence, federal mortgage servicing laws prevent the servicer from starting a foreclosure until you're over 120 days' delinquent on your loan. The 120-day rule applies to both first lien and subordinate lien loans, although it doesn't apply to open-end lines of credit, like home equity lines of credit, or some other types of exempt loans. (To learn more, see How Soon Can Foreclosure Begin?)
Here’s what typically happens during those 120 days before foreclosure starts.
After you miss a payment and the grace period expires, the servicer can charge a late fee to your account. Usually, the grace period is between ten and fifteen days. The late charge will typically be between four and six percent of your payment amount.
To find out the exact amount of the late charge the servicer can charge you after each missed payment, review the promissory note that you signed when you took out the loan or look at your monthly mortgage payment statement. Be aware that some states have a law that limits the amount of the late charge. If the state limit is lower than what the promissory note allows, state law generally overrides the note.
Under federal law, in most cases, servicers are supposed to work with borrowers who are having trouble making their monthly payments by contacting them in person and in writing.
Federal law requires the servicer to make “live contact” with you—or make reasonable efforts to contact you—by phone or in person no later than the 36th day of the delinquency to talk about loss mitigation options. The servicer will likely try to contact you by phone shortly after you miss your second payment. Though, if you initiate a call to the servicer before it calls you, that contact will satisfy the federal requirement. The servicer also has to contact you again within 36 days after each payment due date for as long as you’re delinquent on the loan, even if the servicer previously talked to you.
Exceptions. However, if you’re in bankruptcy or have asked the servicer to stop communicating with you under to the Fair Debt Collection Practices Act (FDCPA), and the servicer is subject to that law, the servicer doesn’t have to try to make live contact with you.
Also under federal law, the servicer has to send you a letter with information about potentially available loss mitigation options no later than the 45th day of the delinquency, and again no later than 45 days after each payment due date as long as you’re delinquent. But the servicer doesn’t have to send this kind of letter more than once during any 180-day period.
Exceptions. If you’ve filed bankruptcy, the servicer must generally send a modified letter that doesn’t request payment. But if no loss mitigation options are available, then the servicer doesn’t have to send the letter. Also, the 180-day rule doesn’t apply, which means the notice doesn’t have to be sent more than once in a bankruptcy. Furthermore, if you're represented by an attorney, the servicer may send the notice to your attorney rather than to you. If you’ve asked that the servicer cease communication with you based on your rights under the FDCPA, then it doesn’t have to send the letter if no loss mitigation option is available or if you’re in bankruptcy. Otherwise, it must send you a modified letter that includes a statement that the servicer may or intends to invoke its specified remedy of foreclosure, but can't contain a request for payment.
Once you're about 90 days behind on the loan, the servicer will likely send you a breach letter. Most mortgages and deeds of trust require the lender to send this type of letter before accelerating the loan (calling the entire balance due). The breach letter gives you 30 days to reinstate the loan and avoid a foreclosure. (Keep in mind that state law might also provide a right reinstate the loan, even after foreclosure begins.)
After you’ve missed the deadline to reinstate that's given in the breach letter, and you’re more than 120 days behind on your mortgage payments, the servicer will usually refer the loan to an attorney or trustee. Then, the foreclosure process will begin. (If you've applied for loss mitigation, though, and that application is still pending, federal law, and in some cases state law, prevents the servicer from referring the loan to foreclosure until it reviews your application.)
To get more information about the federal laws that apply to the preforeclosure period and during foreclosure, as well as information about how foreclosure works in your state, consider talking to a local foreclosure lawyer.
If you need information about different loss mitigation options, including modifications, short sales, and deeds in lieu of foreclosure, or need help with a loss mitigation application, a HUD-approved housing counselor is an excellent resource.