If you cannot pay your mortgage, your lender will take back the house through a foreclosure process. The bank takes legal action against you to get its money back.

Important Takeaways

● A foreclosure is a legal way for a bank to repossess your house when you stop paying your mortgage.
● The process is very long.
● Foreclosures hurt credit scores. They affect your ability to get another loan.
● You can still owe money to your lender after foreclosure.

Why a Foreclosure Occurs

You might lack the money to clear the full payment at once. Lenders will allow you to allow your regular payments towards clearing your outstanding balance. The property you bought serves as collateral. If you cannot pay your mortgage, your lender can initiate a foreclosure.

How Foreclosures Work

Foreclosures are slow and take a very long time. You do not have to worry about eviction if you delay your payments by a few weeks – only a late fee. Foreclosing varies between lenders and depends on the state laws. Here’s how the process usually goes :

You Start Receiving Notices
The notices can start as soon as you miss one payment. The lender will communicate a notice showing intent to start the foreclosure. The foreclosure usually starts three months after you miss your first payment. You receive a demand letter requesting payment within thirty days after three months of passing. The lender contacts their attorney after this. Ensure to read all notices.

The Foreclosure Starts
Your lender can either initiate a judicial foreclosure or a nonjudicial one. Judicial foreclosures are very slow as they take up to 90 days between every event. On the other hand, nonjudicial foreclosures are much faster as they do not require any court proceedings.

Stopping the Foreclosure
Some states require the lender to give you an option to stop the process. However, the alternatives they provide aren’t always realistic. They might require you to make a considerable payment within a concise amount of time.

Auctions and Evictions
When the foreclosure proceeds are successful, the property is sold to the highest bidder in an auction. Ownership of the property will go to your lender if the property is not sold successfully. After foreclosure, you will be evicted from the property after a certain amount of time.

Reclaiming your Property
In most areas, you have the chance to regain your house for a set time following foreclosure. You will be informed about this redemption period in a Notice of Sale. You will be required to pay all your outstanding fees and the foreclosure costs.

Repercussions of Foreclosures

● Your property is forcefully sold.
● Forceful eviction.
● Foreclosures are expensive.
● Foreclosures negatively affect your credit score. This makes getting other forms of financing very difficult.

How to Avoid a Foreclosure

With the help of these methods, you may avoid foreclosure altogether. Here are some tips :

Communicate With your Lender
Ensure to communicate any financial problems that can affect your ability to pay your mortgage with your lender. Ask them for alternatives. Also, do not ignore their attempts to communicate with you when you miss your payments.

Find a Way to Keep your Property
The government and some lenders have programs to help you avoid foreclosure. In order to get help with your mortgage, all that is required of you is to fill out an application. Paying your mortgage in whole and on time every month is the most effective approach to stave off foreclosure. Your lender can modify your mortgage to make it more affordable.

Find Options for Leaving
If you want to avoid the expensive, unpleasant, and lengthy foreclosures and are ready to move on, ask your lender for a short sale to minimize damage. Short sales allow you to sell the property and use the money to clear the loan. You can also ask for a deed in lieu of foreclosure, where your balance can be reduced or eliminated by forfeiting the property.

Bankruptcy
You can file for bankruptcy to temporarily stop the foreclosure. Contact a foreclosure defense attorney to educate you more before filing for bankruptcy. Also, beware of rescue scams that can con you out of your money.

Paying your mortgage in whole and on time every month is the most effective approach to stave off foreclosure. However, if this is not possible, be sure to follow the tips in this article to minimize stress and ease the process.

Why Does Foreclosure Happen and How to Prevent It? by Stephanie Snyder