What is a Foreclosure and
How Does It Work?

If you fall behind in your mortgage payments, your lender has the option to start the foreclosure process. Foreclosure can be overwhelming, but it helps if you understand how the process works and how it will affect your future.

Foreclosure is unnerving. It can feel like your life is out of control. You are not alone. Between January 1, 2018 and June 30, 2018, over 362,275 homes were filed for foreclosure in the United States. But the good news is that this statistic is has been decreasing year after year since the housing crisis that started in 2006. The drop in foreclosures is partly due to homeowners understanding the foreclosure process and how it affects their future.

Foreclosure Rates by Year

What Happens During Foreclosure?

Foreclosure is the process by which your lender seizes and sells your property when you aren’t able to pay your mortgage. Foreclosure usually begins after you have missed three to six mortgage payments. At this point, the lender will issue a Notice of Default, a formal notice that indicates you have fallen behind in your payments. If you are unable to bring the loan up-to-date within three months, the lender will issue a Notice of Sale. This means that your property will be for sale at auction on a specific date.

During a foreclosure auction, the lender sells your home to the highest bidder to recover as much money as possible. The foreclosing lender will decide where the bidding will start. If no one bids on the property, the lender typically purchases the property for the opening bid and it becomes “real estate owned.” In such cases, the lender usually lists the property for sale with a clean title.

Stopping the Foreclosure Process

Once you know your lender has decided to foreclose on your home, you may be able to stop the process using several different methods, even if you don’t have enough money to pay what you owe.

You may be able to halt foreclosure by modifying your loan. Your lender may agree to a modified mortgage, allowing you to stall foreclosure and make more affordable payments.

You may be able to stop foreclosure process by filing for bankruptcy. In most cases, this can halt foreclosure proceedings and give you time to get caught up on payments.

Understanding Statutory Right of Redemption

States can allow borrowers to redeem their property by paying the debt against the home before the home is sold at auction. This is Statutory Right of Redemption.

However, in some states, it is possible to redeem the property even after the home. This law varies by state, so it is important to research your state’s laws to understand how the statutory right of redemption could apply in your case.

Consequences of Foreclosure

Foreclosure can cause your credit score to drop dramatically.

You can lose your home and any equity you built up.​

Lenders can ask you to pay any debt after your house has sold at auction.​

Some face taxes after a foreclosure. The IRS views the forgiven debt as taxable income.

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Leaving Your House after Foreclosure

If the bank forecloses on your home, you will be forced to leave. In some cases, people decide to begin the process of leaving their home as soon as they know foreclosure is coming. Others may decide to remain in the home as long as possible. The time by which you must leave your home during or after foreclosure depends on state law. In some states, you must leave shortly after the home is sold. In other states, you may be able to remain in the home during a post-foreclosure redemption period that could last for several months. If you refuse to leave your home when you are required to do so, you will face eviction.

Frequently Asked Questions About Foreclosure

Applying for a loan modification can delay or even stop a foreclosure, depending on the outcome. When you apply for a loan modification, the foreclosure process must typically stop while the application is pending. If your application is denied, the lender will be able to proceed with the foreclosure. However, if the application is approved, you will be able to keep your home, provided you follow all the terms of the modified loan agreement.

Bankruptcy can often stop the foreclosure process. When you file for bankruptcy protection, an “automatic stay” goes into effect. This stops the lender from foreclosing on your home or continuing a foreclosure process that has already been initiated. However, in some cases, the lender may be able to continue with the foreclosure by filing a petition for relief from the automatic stay. Even if the lender takes this action, your foreclosure will likely be delayed because of the bankruptcy, giving you more time to look for other options.

Probate is a process used to validate a deceased person’s will and pass the individuals belongings on to his or her designated heirs. However, in some cases, a home included in a probate proceeding may be at risk of foreclosure because of late mortgage payments or delinquent property taxes. In most cases, probate will not stop the foreclosure process. Even if the original owner of the home has passed away, the lender can still initiate and complete foreclosure proceedings if the mortgage is not being paid. Likewise, the taxing authority can initiate foreclosure proceedings if the property taxes are not up-to-date.

The U.S. Department of Housing and Urban Development may be able to help you if you are facing the possibility of foreclosure. HUD has approved counseling services all over the nation that can review your situation and help you find the options that are best for you. HUD can also help you determine whether you may qualify for a Making Home Affordable refinance or loan modification, which could make it possible for you to keep your home and reduce your mortgage payments to an amount you can more easily afford.

During the foreclosure process, you will always have legal rights. The specific rights you have during foreclosure will depend on local laws. However, in most cases, you will have the same basic rights available. For example, all homeowners have the right to receive specific notifications related to the foreclosure proceedings. If you are not notified properly, you may be able to take action against your lender. You may also have the right to redemption, which means you can keep your home if you are able to pay the debt against it within a certain period of time. In addition, you may have the right to remain in the home for a specific period of time even after it has been sold. To learn more about your specific rights during foreclosure, consult the laws in your state.

Foreclosure will always cause your credit score to drop. In most cases, this drop will be dramatic. A foreclosure on your credit report will have a greater effect on your score than missed payments, late payments, or a short sale. However, foreclosure will not be as harmful to your credit as a bankruptcy. In general, the higher your credit score is currently, the more it will drop if a foreclosure is added to your record.

Foreclosure will remain on your credit report for approximately seven years. However, over the seven-year period, your credit score will begin to recover. The foreclosure will continue to have some effect on your credit score until it is removed. In addition, lenders who see the foreclosure on your record are likely to view it as a “red flag” even after your score improves, which may make it more difficult for you to obtain new credit.

Getting Help

If you are unable to make your mortgage payments or if you have already received a notice from the lender, seek professional help as soon as possible. The type of help you need will depend on the specifics of your situation and your goals.

If you are worried about being able to make your payments in the future because of financial issues, debt consolidation and financial planning may be the best option. If you are already falling behind in your mortgage payments, you should consider speaking to the lender directly to discuss a possible resolution, such as a modification of the terms of your mortgage.

If you cannot come to an agreement with your lender, consider consulting an attorney to talk about other options that may be available. When foreclosure has already begun, the government’s Making Home Affordable program may also be able to provide assistance.

Lastly, if you are ready to wipe your hands clean of the entire situation, you can sell your house to HomeGo and use the proceeds to back what you owe and move on with your life. It’s fast, easy, and stress-free. Call HomeGo today.

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