Contrary to what it may feel like, lenders don’t like to force foreclosure on a borrower. They would rather work the situation out so that you can afford the loan and the bank gets their money back. When a bank must foreclose on a home, it costs them money and hurts their profits. This is why they will do what they can to prevent foreclosure from occurring. However, there are some situations where it is inevitable. The USDA is no exception to the rule either; they have specific USDA foreclosure guidelines every servicer must follow in order to stay in good standing with the agency.
A Chance to Catch Up
The USDA offers borrowers every chance possible to catch on their past due payments. It is not their procedure to initiate foreclosure proceedings right away. In fact, they require their servicers to start a conversation with borrowers at the first sign of delinquency. For the USDA, this means when a payment is more than 20 days late. Therefore, before the loan even gets reported as delinquent to the credit bureaus, the servicer should be calling you to see what is going on.
- Initial Contact – The lender will likely contact you shortly after you hit 20-days late on your mortgage payment. They can contact you via phone or written letter. The contact the lender makes with you will be to determine why your payment is late and what you can do to fix it. They will need to know if the problem is going to be long-term or if it is a one-time deal. They may ask questions about your employment, income, and your current monthly debts to help determine how dire the situation is at the moment.
- Second Attempt – If the first attempt at 20-days late does not result in a resolution, the lender will follow up again at 60-days late. This time the correspondence will be via an official letter. The document you receive will let you know how important it is for you to touch base with the lender to try to rectify the situation.
If you fail to talk with the lender or you do not follow up on what you agreed to do to bring the account current, the USDA foreclosure guidelines require the lender to inspect the property. The lender must do this in order to determine if the home is vacant or occupied. If the home is still occupied, the lender will continue to try to get in touch with you in order to figure out a repayment plan. If the home looks vacant, or worse yet, abandoned, the lender will take a different action.
- If the lender determines the home looks abandoned rather than temporarily vacant, they must expedite the foreclosure process. The lender must provide ample evidence that helped them come to the conclusion that the home is vacant, however. If this is the conclusion, they can request an accelerated foreclosure process within 15 days.
- If the property does not look vacant, the lender must conduct inspections on a monthly basis to ensure continued life in the home. The main goal is to ensure the home stays properly maintained and free from any type of vandalism.
USDA Foreclosure Guidelines at 90 Days
Once the delinquency reaches 90-days late, the lender must start liquidation proceedings. This is only necessary, however, if you have not been responsive with the lender. If you respond to the lender’s inquiries and work with them to try to repay your delinquencies, this step may be able to be skipped. However, you have to be open and honest with the lender and do whatever it takes to get current on your payments.
The Options to Repay the Loan
Every USDA approved lender must be able to provide borrowers with several options to get current on their delinquent mortgage. These options include:
- Payment arrangements (paying a little bit of the past due back each month)
- Loan modifications that make the payments more affordable
- Forbearance agreements
Of course, lenders can only provide any of these options if you respond to the lender’s inquiries and show the ability to be able to continue to move forward. It is the lender’s responsibility to try to do whatever they can to prevent foreclosure in an effort to protect the government from having to pay out on the loss.
Starting the Foreclosure Process
If the lender’s efforts to recapture the loan up to the point of 90-days delinquency fail, there is no choice but to go to foreclosure proceedings. If you never contacted the lender or showed an effort to make good on your debt, they have the right to accelerate the foreclosure at 90-days. If not, they can legally start the process at 180-days late.
From this point on, the home will get recaptured and you will have to vacate the premises if you have not done so already. In all cases, the lender must secure the assistance of an attorney and proceed as the USDA designates.
It is in your best interest to ensure that you talk with your lender as soon as you know you cannot make your monthly payment. You don’t even have to wait until you hit the 20-day delinquent mark – you can start a conversation right away. The earlier you let the lender know you cannot make your payment, the more they can help you. This means you must keep the lines of communication open and always be honest with your lender. It might seem easier to just avoid the topic due to embarrassment or inability to pay, but this is the worst thing you can do. USDA lenders are required to follow the USDA foreclosure guidelines very closely, which means taking action as early as 20-days late. Talk with your lender and work closely with them to help come up with a plan you can afford and that will allow you to keep your home. The last thing your lender wants is to take possession of your home.