Owning a home is a great thing. It gives you space, independence and can also help to build your credit. When you are no longer able pay your loan, foreclosure is something that you might be dealing with. So, what is foreclosure, how does it affect your credit, and what can you do about it?
What is Foreclosure?
Foreclosure is the process by which a mortgaged property is repossessed by the bank or the lending agency that made the mortgage because the borrower did not hold up their end of the mortgage. This is a term that applies to homes and to other properties on which there is a mortgage that has been negotiated by the bank.
A foreclosure is a very serious thing. If you are dealing with foreclosure, it is always going to be best to speak with the bank and with your financial advisor to figure out what can be done and to start the process of dealing with the foreclosure.
Who Initiates a Foreclosure, and For What Reason?
Foreclosures are not going to happen overnight. You are not going to miss one mortgage payment or be late on one payment and wake up to a foreclosure notice. Each state has their own laws as to when the foreclosure process can actually start and when the bank can roll out the process. In most states, the time frame is 120 days past due on the payments that you have to make.
In most cases, the lender is going to offer you a short grace period after your mortgage payment due date has passed to get current on your loan before they start to add things like penalties and fees to your mortgage. This does not mean that you are in foreclosure, it just means that you have fees that are now going to be attached to your bill that make it higher than it was.
If you habitually miss your mortgage payments or miss four payments, you are likely going to start to deal with the foreclosure process and you are likely going to get a notice from the bank that tells you that the foreclosure is starting. Your lender is going to send you ample notices that you are behind on payments, they are going to ask you if you want to try to get your account current, and they are going to outline what options you have.
Now, your bank does not have to offer you the option to get current on your account. They can simply move forward on your foreclosure without giving you a chance to do anything, especially if you are habitually late.
What is the Foreclosure Process?
The first phase of foreclosure is the actual process of not paying your loan. This is called the payment default process. This is the time frame that is required for the lender to be able to start the foreclosure process. The next phase is the notice that the bank is going to give you to let you know that you are default on your loan.
This is going to be a notice every month that they are late as well as your final notice that you are within the foreclosure period. The next step is going to be a notice of trustee’s sale, this is the initiation of the foreclosure and the formal declaration that you are going to be dealing with a foreclosure.
Next, is the trustee’s sale. This is the actual sale of the property by the bank. Generally, you are going to have a specific time period to get out of the house before the sale takes place. A foreclosure sale is a public auction where anyone can come and purchase the property.
With this type of sale, the minimum bid is going to be the appraised value of the home, the cost of the taxes and whatever is left on the mortgage as well. After the sale is complete, you move into the last phase of the sale which is eviction. The previous occupant will have a short period of time in which they are required to leave so that the new owner can take possession.
Does Foreclosure Affect your Credit?
Foreclosure does in fact affect your credit in a very negative way. It is going to show up on your credit report for seven years and is going to negatively impact your score for the entire time that it is present on your report. It can affect things like getting a new mortgage, getting a car loan, getting credit cards, and even getting a rental property to live in.
In some cases, such as during the COVID-19 pandemic, there was a mortgage moratorium where lenders were not able to evict tenants because they were not able to make their mortgage payments. If you are struggling with a mortgage payment, it is always going to be best to address the problem before it becomes so glaring that you are worried about foreclosure.
You can always refinance if your credit is good enough so that you can actually make the payment, you may want to consider moving to a smaller home with a lesser mortgage, and you may even want to consider something like renting out a room to help offset costs.
Foreclosure is something that millions of people deal with every year and making sure that you know what your rights are, what might lead to a foreclosure, and what you can do to make sure you are taken care of is a must. A good financial advisor can help you get your mortgage payments taken care of and can help you get your payments under control so that you can actually make your payments and keep up with them over the course of your mortgage.
Your lender does have the right to proceed with foreclosure, you should make sure you know the terms of your mortgage before you agree to it and that you are aware of all the possibilities.
Owning a home is a great thing. It gives you space, independence and can also help to build your credit. When you are no longer able pay your loan, foreclosure is something that you might be dealing with. So, what is foreclosure, how does it affect your credit, and what can you do about it?
What is Foreclosure?
Foreclosure is the process by which a mortgaged property is repossessed by the bank or the lending agency that made the mortgage because the borrower did not hold up their end of the mortgage. This is a term that applies to homes and to other properties on which there is a mortgage that has been negotiated by the bank.
A foreclosure is a very serious thing. If you are dealing with foreclosure, it is always going to be best to speak with the bank and with your financial advisor to figure out what can be done and to start the process of dealing with the foreclosure.
Who Initiates a Foreclosure, and For What Reason?
Foreclosures are not going to happen overnight. You are not going to miss one mortgage payment or be late on one payment and wake up to a foreclosure notice. Each state has their own laws as to when the foreclosure process can actually start and when the bank can roll out the process. In most states, the time frame is 120 days past due on the payments that you have to make.
In most cases, the lender is going to offer you a short grace period after your mortgage payment due date has passed to get current on your loan before they start to add things like penalties and fees to your mortgage. This does not mean that you are in foreclosure, it just means that you have fees that are now going to be attached to your bill that make it higher than it was.
If you habitually miss your mortgage payments or miss four payments, you are likely going to start to deal with the foreclosure process and you are likely going to get a notice from the bank that tells you that the foreclosure is starting. Your lender is going to send you ample notices that you are behind on payments, they are going to ask you if you want to try to get your account current, and they are going to outline what options you have.
Now, your bank does not have to offer you the option to get current on your account. They can simply move forward on your foreclosure without giving you a chance to do anything, especially if you are habitually late.
What is the Foreclosure Process?
The first phase of foreclosure is the actual process of not paying your loan. This is called the payment default process. This is the time frame that is required for the lender to be able to start the foreclosure process. The next phase is the notice that the bank is going to give you to let you know that you are default on your loan.
This is going to be a notice every month that they are late as well as your final notice that you are within the foreclosure period. The next step is going to be a notice of trustee’s sale, this is the initiation of the foreclosure and the formal declaration that you are going to be dealing with a foreclosure.
Next, is the trustee’s sale. This is the actual sale of the property by the bank. Generally, you are going to have a specific time period to get out of the house before the sale takes place. A foreclosure sale is a public auction where anyone can come and purchase the property.
With this type of sale, the minimum bid is going to be the appraised value of the home, the cost of the taxes and whatever is left on the mortgage as well. After the sale is complete, you move into the last phase of the sale which is eviction. The previous occupant will have a short period of time in which they are required to leave so that the new owner can take possession.
Does Foreclosure Affect your Credit?
Foreclosure does in fact affect your credit in a very negative way. It is going to show up on your credit report for seven years and is going to negatively impact your score for the entire time that it is present on your report. It can affect things like getting a new mortgage, getting a car loan, getting credit cards, and even getting a rental property to live in.
In some cases, such as during the COVID-19 pandemic, there was a mortgage moratorium where lenders were not able to evict tenants because they were not able to make their mortgage payments. If you are struggling with a mortgage payment, it is always going to be best to address the problem before it becomes so glaring that you are worried about foreclosure.
You can always refinance if your credit is good enough so that you can actually make the payment, you may want to consider moving to a smaller home with a lesser mortgage, and you may even want to consider something like renting out a room to help offset costs.
Foreclosure is something that millions of people deal with every year and making sure that you know what your rights are, what might lead to a foreclosure, and what you can do to make sure you are taken care of is a must. A good financial advisor can help you get your mortgage payments taken care of and can help you get your payments under control so that you can actually make your payments and keep up with them over the course of your mortgage.
Your lender does have the right to proceed with foreclosure, you should make sure you know the terms of your mortgage before you agree to it and that you are aware of all the possibilities.
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