Just because you're behind on your loan doesn't mean that you're in foreclosure. A foreclosure is a legal process by which your lender takes over your ownership of your house because you haven't made your payments. While your lender can foreclose, it doesn't have to, and you may be able to work something out.
You are not in foreclosure no matter how late your mortgage payments are until the bank notifies you that it has begun foreclosure proceedings.
Defaulting on Your Loan
If you don't make your mortgage payments, you will be in default of your loan. Typically, your bank gives you a grace period to make your payment -- usually around 10 or 15 days. After the grade period, your payment becomes subject to a late fee. As long as you make the payment before the end of the month, keeping it less than 30 days late, your late payment shouldn't affect your credit report.
Once you hit 30 days, though, the default process gets more serious. Your bank will probably start calling more frequently and sending mail. Depending on how your loan paperwork is written and on your state's laws, your lender can start foreclosure proceedings once you reach an appropriate stage of default.
Understanding the Foreclosure Process
A foreclosure is the process by which the lender calls your mortgage loan back and takes the title to your property. If you read your loan agreement, you will usually see a clause, called an acceleration clause, that allows your lender to make your loan due if you don't pay it. If you can't pay the entire loan, the lender gets to use its security interest in your home -- provided by the mortgage or trust deed -- to take the house.
The foreclosure process varies from state to state and can take anywhere from a couple of months to well over a year, assuming that things move along at maximum speed. According to NOLO, a website for legal help, the general federal requirement is 120 days delinquent before foreclosure proceedings can begin. It doesn't start, though, until your lender starts the process. Until then, you're just paying late.
Why Banks Wait
Banks will frequently wait to start the foreclosure process even though they're legally entitled to do it. They might want to give you time to work out your problem or to sell your house. In some cases, they're too busy dealing with other distressed properties to get around to foreclosing on you. If you're behind on your payments, don't get complacent about it. Take steps toward a solution. Just because the lender hasn't foreclosed doesn't mean that it won't, and it could start the process at any time.
Why Banks Don't Foreclose
Sometimes, banks don't foreclose because they don't want to own properties. If you are living in your property and taking care of it, it's not the bank's problem. Once it forecloses on you and throws you out, your bank will have a vacant house that it needs to maintain. As of the date of publication, there were many houses on the market in many parts of the country, and some lenders were reluctant to take more back, fearing that they wouldn't be able to sell them.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.