If a homeowner fails to make payments upon the mortgage, the lender may foreclose on the property. Foreclosure allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately. This action is accomplished through an acceleration clause in the mortgage. Many states regulate acceleration clauses and allow late payments to avoid foreclosure. Depending upon the terms and agreements made in the mortgage contract, the lender may do a statutory foreclosure or a judicial foreclosure. A statutory foreclosure can be performed without bringing a court action. The lender does have to follow strict state regulations as to the proper notices and opportunities to provide payment by the homeowner before a sale of the property occurs. This procedure is relatively quick. If a judicial foreclosure action is required, the lender must file a complaint with the court system and go through the litigation process to obtain the right to foreclose on the property. In several state jurisdictions, the homeowner is allowed the right to stay in possession of the home until the foreclosure process is finalized or a sale of the home occurs.
Since lenders want to avoid the cost of foreclosure, the lender will sometimes work out an agreement with the homeowner whose payments have fallen behind. The lender may accept interest only payments or partial payments for a while in order to assist the homeowner. There are detailed regulations regarding foreclosure procedures. Filing a Chapter 7 bankruptcy temporarily stalls a lender’s right to foreclosure, until it gets court permission to go forward with the foreclosure proceedings. Under a Chapter 13 plan, it is possible for a homeowner to make up the missed payments. Liens do not automatically go away in any bankruptcy. A bankruptcy discharge does not extinguish a lien on property.