MSU Extension

Going through foreclosure is a tough experience but understanding what key terms mean and how the process works can help lessen the stress. Unless you are in a profession where you deal with foreclosure on a regular basis, there is no reason a person should know and understand the terms that will be spoken and written by your lender, their attorneys or your housing counselor. Here’s a brief breakdown of the top 5 terms most used and most confusing.

Default

Default for a homeowner is when a payment is missed. There are different levels of default and different actions are taken depending on the level. Technically, a mortgage loan is in default on the second day after the due date. In reality, very few lenders will consider the loan past due on the second of the month. In common practice, a late charge is assessed on the 15^th day after the due date (almost always the first of the month) and the loan is considered delinquent and in default 30 days after the due date. Serious default occurs when the loan is 90 days or more past due.

Loan modification

Loan Modification is changing the original terms of the mortgage loan in some way. Modifications became a popular way for struggling homeowners to save their homes from foreclosure, and the government set up a program, called HAMP, in 2010 to help with loan modifications. That program is ending at the end of 2016 but mortgage companies still have the ability to modify mortgages.

Foreclosure

Foreclosure is a legal process usually started by a lender when a borrower defaults on their mortgage payments. Each state determines the timeline and process for their respective states so it is best to consult with your state housing authority to find out the laws and timelines for your state. Note that the operative word is process as foreclosure doesn’t happen instantly.

In addition, a foreclosure can either be considered judicial or non-judicial. Which method varies by state and specific homeowner circumstances. For example, in Michigan, a foreclosure action can’t begin until after the loan is 120 days past due and is predominantly non-judicial. This gives both the homeowner and the lender time to work together on a plan to avoid foreclosure.

Sherriff sale

Sheriff Sale is an actual auction, held in some states by the county sheriff’s office, when the property has gone into foreclosure due to default and no payment agreements were able to be worked out with the borrower. Notice of the sale must be published for at least four consecutive weeks. They can be postponed if a repayment agreement is worked out before the actual auction is held.

Redemption period

Redemption period is the time after the Sheriff Sale before the owner has to give up the residence. It is also a time when the homeowner can redeem the home by paying off the balance of the amount bid at the Sheriff Sale. If the amount bid was less than the balance, then only the bid amount needs to be paid in full. The time period for a redemption period will vary from state to state and depend on the type of foreclosure action – judicial or non-judicial. If paying off the full balance isn’t possible, the redemption period can be a time to regroup, save some funds and get ready for the next step of finding a new residence.

For tips on how to start over after foreclosure, visit MSU Extension’s Starting Over After Foreclosure page.

Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy.  For more information on classes in your area, go to MSU Extension's Events or MI Money Health. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.  

Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at MIMoneyHealth.org.

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