In the last few years, many homeowners have seen their homes foreclosed on. When we hear about foreclosures, we often hear about evictions as the bank repossesses the home. However, the entire foreclosure process is a little more complicated than that.
For those who have the means, it’s actually possible to halt the process at various points. A foreclosure isn’t something that just happens at once. It’s a process that can take several months — or even years — to accomplish.
Each state has different laws associated with foreclosure, so it’s a good idea to understand how foreclosure works in your specific state. You can also consult with a knowledgeable real estate attorney. In general, though, there are a few things to expect in most locations:
Notice of Default
First of all, the lender will send you a Notice of Default to officially let you know that you have been missing payments. Often, this is a letter that lets you know that your payment is due, and it lists what you need to do in order to get back in good standing. This letter often comes after you have missed about three months’ worth of payments, but timing could vary.
At this point, you can call your lender to see what your options are. You might be eligible for loan modification, or some other arrangement, if your current troubles are temporary. You can also talk about the possibility of selling your home, or taking other actions, in order to avoid getting further in the process.
In many cases, you are given 30 days from the date on the Notice of Default to redeem your home. Some states require that you be sent a Notice of Acceleration to spell out the exact terms required for you to become current and avoid escalation.
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This is when the lender actually files for a foreclosure. Find out the exact process that has to be followed for your state. In some states a judge has to approve all foreclosures, and in others the process moves quicker. Depending on the backlog of homes and other factors, it can take up to two years — or more — for a foreclosure lawsuit to wend its way through the system.
While this is happening, you can still try to sell your property, or redeem it. You will be provided with a specific date for this to happen. However, many lenders aren’t willing to work with you at this point.
Once the foreclosure is allowed to go through, an auction date is sent for your home. Bidders are allowed to come and try to get your home. Public auctions are publicized, and many investors like to come pick up properties for pennies on the dollar. You can come and bid on your own house, if you’ve managed to get enough cash together, but once the auction is complete, that’s pretty much it.
After the house is sold at auction, or if the minimum bid wasn’t met and the bank has to consider it “real estate owned” (REO), you will be given a date to vacate the house. If you don’t leave the house, local authorities might be sent to evict you.
Credit Consequences of Foreclosure
A foreclosure can drop your credit score as much as 300 or more points. Once you have that foreclosure on your credit report, you might not be able to buy a home for at least two years, and there is a chance that you will pay much higher interest rates on a mortgage you get for the next five to seven years.
Foreclosure usually isn’t fun for anyone. If you can, try to work with your lender before it gets that far. And if you can’t realistically afford to keep your house anymore, try to sell it quickly to avoid the credit hit and other issues that come with foreclosure.
Image Credit: Nathan Congleton