At each step (except the final one), a homeowner facing foreclosure has very real stopgaps, options, and solutions that can put an end to their immediate financial woes and help them emerge from the process with minimal damage. 

Stage 1. Pre-Pre-Pre-Foreclosure

The homeowner hasn’t fallen behind on mortgage payments yet but is in danger of falling behind soon. The reason might be due to an initial low interest rate poised to reset, a recent job loss, job relocation, or unexpected medical expenses.

At this earliest stage, lenders will often work with you to make the mortgage payment affordable. Such a solution might only be short-term, but a short-term solution could very well get you past the immediate crisis, which will give you time to get your life in order once again.

As an example, a 5-year freeze of your current ARM interest rate may be available. In 2007, President Bush announced a 5-year freeze for qualified borrowers. The freeze applies to mortgages obtained between January 2005 and July 2007 and are scheduled to reset between January 2008 and July 2010. Contact your mortgage lender to see if you qualify.

Stage 2. Pre-Pre-Foreclosure

The homeowner is one to three months behind in making mortgage payments, and the lender hasn’t yet served foreclosure papers.

Because banks have been overwhelmed with troubled loans, it may well take many more months before your lender catches up with you. Don’t wait around. Make the call first. Show them you’re eager to work out a solution.

Meanwhile, should a reversal of fortune occur over the short-term, back payments are easy to make good.

Another positive in your favor — there’s plenty of time to market, sell, or rent your house.

Stage 3. Pre-Foreclosure

This is the stage when the lender has served foreclosure papers or a Notice of Default (NOD) on the homeowner.

In Florida, the homeowner has 20 days to answer. At this point in time, contacting an attorney is an absolute must.

The lender will take the following actions —

• Conduct a title search to uncover all liens
• Order inspections and an appraisal or ‘BPO’ (Broker’s Price Opinion) to determine the condition and value of the property
• File court action and a formal Lis Pendens (litigation pending)

Even at this advanced stage, back payments are still low enough for you to make good. You also have time to negotiate with the lender or sell your house. Obviously, though, the clock is ticking.

Stage 4. In Foreclosure

Things have advanced fairly far along, and time has just about run out. The court makes a final ruling, called the Final Judgment, which includes the loan amount, missed back payments, late fees, inspection fees, escrow advances, and attorneys’ fees.

Approximately 30 days later, the court holds a public auction for the sale of the property. Auctioned properties must immediately be paid for in full with a cashier’s check.

However, since property values have recently fallen so significantly—in most cases below the amount of the Final Judgment—most properties don’t sell and revert to bank. The property is then referred to as an ‘REO’ (standing for Real Estate Owned) or more commonly ‘Bank-Owned’.

Once the disposition of the property has been determined, owners and tenants must move out. If they don’t, the County Sheriff can institute eviction proceedings.

After coming into full possession of the property, the bank usually lists the house with a real estate agent, at which time it becomes available to buyers through the local Multiple Listing Service (MLS).

Before the lender can sell the property, it must remove all liens on the title, such as back taxes, HOA dues, or any other encumbrances that may hinder the sale and prevent a clear title from being delivered to a new owner.