Many homeowners seem to consider “filing foreclosure” as a way to deal with a financial hardship and give up a mortgage payment they are no longer able to afford. They may want to know how they can file for foreclosure the best way, or how to do it at all. However, this misunderstands the foreclosure process and the fact that it is not the responsibility of property owners to file foreclosure paperwork to begin the process.
It is not the homeowners themselves who file foreclosure on a house, nor do they decide when to file the paperwork, nor do they decide how it will be pursued in the local court system. All of these aspects are determined by the lenders and creditors who have liens on the house that show their claim to the property in the event of a default. To begin foreclosure, all the homeowner has to do is stop paying the mortgage every month, whether this is the first mortgage, second mortgage, home equity line of credit, or other lien on the house.
So, if homeowners stop sending in the monthly payment to the first mortgage, after a period of time (typically 3-6 months in a row of missed payments), the lender will automatically begin the foreclosure process. It will hire local attorneys to initiate the lawsuit in the local court system and have the paperwork served on the homeowners. The actual owners themselves do not have to do anything besides miss their mortgage payments — the mortgage company will begin the foreclosure proceedings with or without any further input from the borrowers.
The same works if the homeowners stop paying their second mortgage or any other junior liens. Even if they keep up on the first mortgage payments, the second lien holder will eventually sue the owners for foreclosure and attempt to have the house auctioned off. There may be little chance that the second mortgage company will receive much from the sheriff sale of a house, since properties typically sell for not even enough to pay off the first lien, but the lender will not wait forever for the owners to get back on track. Eventually, it will be better to take the loss, write off the loan, and take any write-offs that are available.
In the case of homeowners who stop paying on both or all mortgages at once, it is usually the first mortgage that will file for foreclosure first, since they have more of a stake in any proceeds from the auction. If the homeowners do not find a solution to stop foreclosure, then it is likely that the junior lien holders will simply let the house go and write off their loans. In most instances, the sheriff sale will not generate enough proceeds to pay off the first mortgage in full, and other liens will not be paid off at all. There may be a small chance of being sued afterwards for a deficiency judgment, but this is a somewhat remote possibility.
Thus, homeowners do not have much input at all in how the foreclosure process will move ahead on their home; once they begin missing payments, the mortgage company will inch ever closer to filing a lawsuit for foreclosure. Instead of asking how they can file foreclosure, more homeowners should be asking how they can avoid foreclosure and what options they have other than just watching the house be sold out from under them.