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The 4 stages of home foreclosure

You've been living in your home for 10 years, and it was never difficult to make the monthly payments on your mortgage. During the last decade, you've built up a sizable amount of equity in your home, and in a few short years you'll own the property free and clear. The problem is, you just lost your job and you're about to miss a mortgage payment.

When you start to miss mortgage payments, you'll hear from your lender very quickly. Your lender will then begin the foreclosure process, which, upon its completion, will take your home and all your equity away from you. If you can't take immediate action to pause or stop the foreclosure from moving forward, here are the four stages of foreclosure that you can expect:

1. You're late on your payments

Generally, you have to be 90 days behind on payments before your mortgage lender can begin foreclosure proceedings. Before this period of time has passed -- i.e., before your lender can initiate the foreclosure -- you'll have quite a few options available to stop the foreclosure, but it's important to act fast. At this time, you might renegotiate your loan and payment terms with the lender, put your home up for sale or file for bankruptcy.

2. Pre-foreclosure

After the 90-day period has passed, your lender will file a public Notice of Default that you're late on payments and mail it to you. You'll now have another three months within which you can try to catch up on your late payments. During this time, you can try to sell your home, strike a deal with the lender or file for bankruptcy.

3. Auction

At this stage, the lender or a representative of the lender will schedule an auction date for the property by filing a Notice of Trustee Sale. You'll receive a copy of this notice showing the date of the sale. Until the auction, you may have the right to cure the deficiency in payment with cash.

During the auction, your home will go to the highest bidder. Often, the highest bidder is the lender and the bank buys it back. Or, the bank may sign a deal with you to simply take it back.

4. Post-foreclosure

Barring a third-party purchase of the home, the lender will assume ownership of the property. The property will then be classified as "Real Estate Owned (REO) by lender." The lender will then sell the property, usually through a real estate agent and sometimes through an REO liquidation auction.

Are you going to be late on your mortgage payments?

At the first sign of being late on your mortgage payments, it's important to act quickly to prevent a home foreclosure. In some cases, filing for bankruptcy will stop your foreclosure in its tracks, buy you the time you need, and help you avoid losing your home and equity.

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