Foreclosure
It is crucial to know your choices and understand all the potential solutions that might be available to help you avoid foreclosure. It’s also imperative to understand what could happen if you fail to take action and foreclosure becomes unavoidable. The process can be embarrassing, nerve-racking and it can have enduring consequences.
Voluntarily walking away from your home might seem like the best option when your home is valued lower than the amount you owe. However, this action might lead to financial ramifications in the future. In some states, you can be required to pay a part of your mortgage debt even after the home has entered foreclosure. In addition, the impact to your credit may make it tough to rent or purchase a house in the future. It might be best to explore other options to foreclosure with your mortgage company before deciding to leave your home.
Bare in mind, your mortgage company does not want to foreclose on your house. Just like there are ramifications for you, the foreclosure process is expensive and time-consuming for them. They want to work with you to solve the situation before you reach foreclosure. However, some homeowners just don’t take advantage of the available assistance and foreclosure becomes the only option.
Foreclosure could result in you, for example:
1. Owing the mortgage company the deficiency balance of your mortgage (the deficiency balance is the remaining total mortgage balance after the sale price of the property).
2. Lengthening the time you could receive a mortgage to purchase your next home to at least 7 years.
What is a Foreclosure?
A foreclosure is the legal process when your mortgage company gains ownership of your home (ex. repossess the property). A foreclosure happens when the homeowner fails to make payments and has violated or defaulted the terms of their mortgage loan. A foreclosure could often be avoided, even if you already received a foreclosure notice. See the chart (in Foreclosure Comparison tab) to compare some other choices: Short Sale and Mortgage Release (Deed-in-Lieu of Foreclosure). No matter the choice, you must take action as soon as you could.What are the consequences of a Foreclosure?
- – Being eviction from your home; you will not only lose your home, but you will lose any equity that you might have established
- – Uncertainty and stress of not knowing exactly when you will have to leave your home
- – Damage to your credit; which will impact your ability to get new housing, credit, and maybe even potential employment, for a number of years
- – You may owe a deficiency balance after the foreclosure sale
- – You will lose any leasing opportunities or relocation assistance that might be available with other options
- – You may forfeit the ability to get a mortgage to purchase another home for at least 7 years
How does a Foreclosure work?
There are 2 main kinds of Foreclosure:
- – Judicial: supervised by a court with formal legal proceedings (civil law suit)
- – Non-Judicial: not supervised by a court
How do you avoid Foreclosure?
It is most imperative to take action now. You have everything to gain and nothing to lose by working with your mortgage company to avoid Foreclosure. Once foreclosure is imminent, other options may no longer be available to you. However, you may still be able to leave your house without having to go through actual Foreclosure. This will mean that you will not have a Foreclosure on your credit history and you may be eligible for relocation assistance to ease your transition to a new home.What Next?
Step 1
Collect your financial information; be sure to have all your basic financial and loan information on hand when you call your mortgage company. You will need to have:- – Your mortgage statements, as well as any information on a second mortgage, if you have one;
- – Your other monthly debt payments (ex. credit card payments, car or student loans);
- – Your income details (income tax returns and paystubs).
Step 2
Explain your current situation. Be prepared to describe your current hardship and explain why you are having trouble bringing your loan up to date, and whether this is a short-term or long-term issue. Your mortgage company will need to have a clear understanding of the reasons why you are having difficulty in order to find the right solution for you.Step 3
Contact a mortgage company and tell them that you are interested in a Mortgage Release and you want to see if you are eligible.
Short Sale |
Deed-In-Lieu |
Foreclosure |
|
How is property ownership transferred? |
Voluntarily: if you can find a buyer and sell the home | Voluntarily: you transfer title back to the owner of the mortgage | Forced: in public auction |
Does the Foreclosure stop? |
Possibly: Foreclosure stops only if you find an acceptable buyer for your home | Yes: Foreclosure stops as soon as you transfer the title/deed | No: Foreclosure continues and the property is seized |
Future financing eligibility? |
Yes: in as few as two years | Yes: in as few as two years | There is an up to 7-year waiting time period |
Relieved of outstanding first-lien mortgage debt? |
Maybe: you might still be liable for some of your first-lien mortgage debt | Maybe: you might still be liable for some of your first-lien mortgage debt | No: you are liable for all of your first-lien mortgage debt |
Receive cash for relocation expenses? |
Yes: up to $3,000 | Yes: up to $3,000 | No |
Have time to move out of your house? |
Yes: however, timing is dependent on sales contract/buyer | Yes: you might even be able to lease your house for up to 12 months! | No: little control over transition timeline with possible eviction |
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