When a borrower is late on their payment(s) or misses them all together, it is a common misconception that they are immediately foreclosed upon. In reality there are several stages of the loan “workout” process.
In the first stage, the lender will usually make a friendly inquiry as to why the borrower’s payment(s) were later or missed. This is a fact finding mission and it usually guides the lender’s next actions.
In the second stage, the lender will attempt to work with the borrower to come up with a solution to whatever their issue is. Often this could involve restructuring the loan or providing a temporary forbearance.
The key point to remember about this stage is that the lender’s financial incentive is to work with the borrower to prevent any further deterioration in the transaction. To that end, the lender will actively work with the borrower and/or their representatives to negotiate a solution that will get the loan back on track. The exact workout strategy is unique to the individual loan and to the borrower’s situation, but such strategies typically include one (or all) of the following:
