You raise an excellent question. It appears you are referring to a balloon loan; any other loan would be paid in full or nearly paid in full by the maturity date and then a work-out would make a lot more sense than a foreclosure.
Unfortunately, Section 1026.41(f)(1) does not address the issue raised in your question. As a result the safe course of action is to wait until the borrower is more than 120 days past due. If you want to begin foreclosure sooner you should seek an interpretation from the Consumer Financial Protection Bureau or a legal opinion from your bank’s counsel.
If you obtain an interpretation from the CFPB please share that information with us in this Forum. I sure others would benefit from your findings.