Facing Foreclosure

For many homeowners, this is where the trouble begins. Adjustable-rate mortgages typically carry a low fixed rate for a set period, such as five or seven years. Once that introductory rate expires, the interest floats to an adjustable rate. Most ARMs cannot increase more than two percentage points a year, but often that’s enough to put owners over the edge.

When times are good, banks typically don’t pay a lot of attention to one missed payment; they’ll send a second notice and slap you on the wrist with a late-payment fee. But the rising rate of delinquencies has put lenders on high alert.

Technically, accounts are delinquent as soon as one payment is overdue. But most lenders give homeowners 90 days before they begin legal proceedings. In the meantime, the lender will attempt to contact the borrower, usually with repeated phone calls or in writing. A lender typically issues one last warning — a “notice to issue first legal notice” — before making the delinquency public.

After the lender sends its final warning, it makes the default public by filing with the county. At this point, the information is public record and widely available to investors, buyers, creditors, snooping neighbors and scam artists. Many scammers identify themselves as “loss mitigation brokers” who will help owners negotiate with their lenders. Homeowners should be leery of anyone charging a fee to help them.

The legal notice of default is typically followed by a letter stating that the full balance of the mortgage is due immediately. If the homeowner can’t pay off the loan — and usually that is the case — the lender seeks court permission to take possession of the house.