Some lenders will negotiate with you during the NOD period. In fact, beginning a modification is often a great way to forestall the default and foreclosure proceedings. Sometime after the 30 day NOD period, usually pretty soon afterward, the bank will transfer the note to the foreclosure department. This is bad news for you, because once the foreclosure department receives the file, you will likely no longer be able to do a modification. It’s still technically possible, but increasingly unlikely at this point. You will have to get completely caught up on all past due payments and all late fees and rapidly increasing legal fees that often total $2500 or more. They won’t accept a payment plan either. It’s all or nothing, and very expensive. More than likely, you will lose your home if you don’t pay everything you owe.
At this point, if you absolutely cannot find the money to get completely caught up, then you should consider a short sale immediately. The one bit of good news at this point is that the foreclosure process takes three to five months. A sale date will be set, and you would be evicted around this time. Fortunately, you will still be able to make the necessary payment and get the home out of foreclosure up to roughly 30 days before the sale date—though this is an admittedly uncommon occurrence—so you would have a little time to come up with another solution or sell the home through a short sale. If you do decide to try a short sale, then many lenders will extend this timeline out a bit at the urging of the short sale expert who is listing the home.
The timeline for this whole process will vary somewhat from lender to lender. Some banks will send the default notice immediately after one or two missed payments and begin foreclosure as soon as legally allowed, while others will prolong the process, allowing a homeowner to stay in their home as long as a year without paying before they are forced out. You can to find out the intentions and timelines of your lender by simply calling the Loss Mit department and asking them.
Make a note that the Loss Mit department, Foreclosure Department, and Collections Department often operate totally independently from one another. This is inefficient and dumb, no doubt, but what can you do? Know that just because you’re nearing completion of a loan modification, this does not mean that you won’t receive an NOD or even go into foreclosure. You need to continue making payments so as to not fall further behind, and you also need to act as quickly as you can with the modification process.
Since 2007, deficiencies from a foreclosure or short sale are no longer considered a taxable event by the IRS. This means that you may not be forced to file bankruptcy because of a foreclosure, as used to be the case. However, some states still consider it a taxable event, especially for second mortgages, so you may be liable for paying state income taxes on any deficiencies. Because these deficiencies can be large, the taxes on these amounts can be overwhelming in and of themselves, possibly requiring you to file bankruptcy if you end up getting foreclosed on.
