Definition, Process, Ways to Avoid

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  • A foreclosure is when a lender repossesses your home because you defaulted on your mortgage.
  • The exact details of the foreclosure process vary by state and lender.
  • There are options to avoid foreclosure if you act quickly and contact the lender.

The thought of losing your home is scary. But if you can’t keep up with the monthly payments, the lender may pursue the loan.

Although foreclosure is a financial situation that no one wants to face, it is important to understand the details of this legal process.

What is foreclosure?

A foreclosure involves a lender taking over your home because you have defaulted on your mortgage. Often, this is the result of missing several monthly payments. However, the lender can foreclose on the property if the borrower does not meet other conditions stated in the mortgage document.

Levon Galstyan, an accounting consultant at Oak View Law Group, said some of the common reasons homeowners find themselves in this position are unexpected high expenses, rising interest rates , job losses, health risks that lead to more debt, and natural disasters.

From the lender’s point of view, foreclosure is necessary to recover their financial losses. After foreclosing on the property, most lenders will sell it to recoup the borrower’s unpaid balance.

Unfortunately for former homeowners, a foreclosure will appear as a negative mark on their credit report for seven years.

The arrest process

The details of the foreclosure process vary by state. Borrowers are technically in default 30 days after non-payment. Generally, lenders begin the foreclosure process between three and six months after the first payment.

Once the loan is past due, the lender indicates its intention to withdraw the loan by issuing a default notice. At that point you will enter the pre-arrest process.

“To delay or stop the foreclosure, borrowers can challenge the process and file a petition if they need more time,” said Galstyan.

Depending on the situation, the lender may be willing to work out a new payment arrangement. However, doing so means reporting your financial situation to a lender or mortgage lender. If he decides to go ahead with arrest, “the duration of the state varies and usually ranges from 120 days to nine months,” Galstyan said.

During the foreclosure process, the homeowner must carefully read the notices sent by the lender.

“Make sure you attend all court hearings and use your local court’s legal aid department for free advice and guidance,” says Bill Samuel, owner of Blue Ladder Development, a real estate company in Chicago. .

A type of seizure

Seizures fall into a few different categories. Here’s a closer look at each:

  • Judicial Attack: Judicial foreclosure involves the creditor filing a lawsuit in local court. If your creditor pursues a foreclosure, you will receive a letter in the mail asking for late payment. After that, you have 30 days to send the money or sell the property at a local court or sheriff’s auction.
  • Selling authority: If the mortgage has a power of sale, the lender can pursue a power of sale. After the loan defaults, the lender will send a letter demanding payment. If you are not caught within a certain period of time, the credit company can auction it without going through the local court system.
  • Tough Robbery: With a foreclosure, the lender files a lawsuit when the homeowner defaults on the loan. If you don’t make the payment within a certain period of time, the lender will repossess the property.
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Can I get a refund from a foreclosure?

If you’re struggling to make your mortgage payments and want to avoid foreclosure, you may be wondering if refinancing is an option. It can be, but generally you have to start the process before the seizure starts. With bad credit, it can be difficult to get approved by a new lender.

Does a foreclosure affect my credit?

Since a foreclosure will remain on your credit report for seven years, it can have a lasting effect on your credit score.

With a low credit score your chances of getting a loan in the future are very low. For example, if you want to finance a car in the next two years, you may be exposed to higher interest rates and limited borrowing power.

In the years after foreclosure, your home buying options are also limited. With a conventional mortgage, you have to wait seven years after the foreclosure before you can get a new loan. If you’re looking for a government-backed loan, you may not have to wait long. Either way, a foreclosure will affect your home buying options for years to come.

7 ways to avoid arrest

If you experience a seizure, it is a stressful and uncomfortable situation. But there are steps you can take to prevent it.

1. Contact your lender

Lenders often won’t lend a helping hand unless you ask for it. Staying open with your lender about your financial situation can lead to a solution.

2. Ask for tolerance

A forbearance is a temporary break or reduction in your monthly payments. Some lenders are willing to provide this temporary to avoid foreclosure.

3. Apply for a loan modification

If your monthly payment is too high, ask your lender about a loan modification, which is a permanent change in the loan term. Longer repayment terms or lower interest rates can result in more manageable monthly payments.

4. Financing

For homeowners concerned about their ability to make future payments, consider financing with the goal of lower monthly payments. You will most likely need to earn money now before you can get financing.

5. Sell the house

If you can sell the home for more than you owe, you can use the proceeds from the sale to pay off your debt.

6. Find a short sale

A short sale is selling your home for less than what you owe. This option includes securing lender approval before signing on the dotted line.

7. Writ in Lieu of Arrest

If you are unable to sell your home, submitting the deed to the lender may free you from your debt.

The bottom line

Foreclosure is a process no one wants to go through, with ramifications that can affect your finances for years to come. If you need help navigating the process, find a HUD-approved housing counselor in your state.

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