What happens when I stop paying my mortgage?

Well, it’s not such a weird question anymore. More and more Americans are defaulting on their mortgage payments as this economic disaster is compounded by the government’s continued placement of Wall Street banks and the negligence of homeowners. There are a number of questions that go through most people’s minds when contemplating defaulting on their mortgage, so I thought I’d take a few minutes and explain a few of them.

There are 2 types of leveraged arrangements that banks use to guarantee their loans. There’s a deed of trustees and there’s a mortgage. The difference is not significant and can be explained with a little research online. In most cases, the first step is that the homeowner hits a financial hurdle that they cannot cross and refuses or is unable to pay their payment.

In the case of a Deed of Trustees, there are 2 periods that mark certain stages of foreclosure that are quickly approached by the homeowner who defaults on their home loan. The first is the “default period”, which usually has a delay of about 90 days. Once your house payment is at least 90 days late, the bank can file a public notice called a “notice of default” which serves as a public notice that they are going to instigate foreclosure unless you repair the shortfall. The next notice is the “Notice of Sale” and serves to inform the public that the lender has retained a trustee to set a foreclosure date and execute the sale on that day. This period is usually at least 4 months, but varies by state.

On the scheduled date of the foreclosure sale, if the owner has not agreed to remedy the shortfall, the trustee simply announces to everyone present that the sale of such-and-such property is about to begin. Typically, the bank buys back your property in what is called a reserve offer, which is always the amount owed to them for the property. In a deed of trustee state there is no right of redemption and the sale is final immediately.

In a mortgage statement, there is basically a period of time that tends to be longer than the trustees’ statements of deed and is followed by a period of time called the “right of redemption period.” During that period, even though there has been a promise from the buyer to buy the property, the owner has the right to raise enough money to “redeem” the property. The redemption period is usually 90 days. If you are the buyer of a foreclosed property and you make repairs to a property, and then the previous owner redeems it, you will lose everything that the previous owner has invested.

The process may have been simplified for convenience, but I hope this explains what you can expect when you default on your mortgage, and should give you a time frame in which you will be allowed to stay in your home before you prompted. Leave if you don’t remedy the situation.