A foreclosure legally allows your lender to take back your home and resell it if you fail to make your mortgage payments. If the resale value is lower than the amount you still owe on your mortgage, you could end up owing the difference (this is called a deficiency judgment). Not only does foreclosure have long-term, damaging effects on your credit history, it also becomes a matter of public record.
Foreclosure occurs on a property for several reasons. Monthly mortgage payments may not be made, or some type of fraud is involved and the lender has decided to accelerate the loan.
Whatever the situation, after a certain period of time – depending on the closing documents–the lender will accelerate the loan. An acceleration letter will be sent requesting the full amount past due. This amount is to be paid by a specified date. If the amount is not paid, the lender will accelerate the loan, and foreclosure proceedings will begin. A foreclosure package will be forwarded to an attorney or trustee by the lender, depending on the state in which the property is located, and legal action will commence. The period of time in which it takes a lender to foreclose varies by state.
Once the attorney receives the package, his or her fees and costs as they are incurred become part of the amount due and the total debt. The attorney files a complaint and the foreclosure process begins. The longer the process, the more it costs the consumer.
As the foreclosure progresses and the sale takes place, the fear of losing the home becomes a reality. Once the foreclosure sale takes place, the home is lost. In certain states, a property may be redeemed, but at the total debt amount, not the past-due amount.
If a foreclosure sale takes place and the former homeowners remain in the property, they will be evicted. All personal items will either be set out on the street or stored for a specified period of time. In addition, individuals can be sued in some states for a deficiency balance, and wages and/or assets can be attached.
A foreclosure will impact your credit score negatively and will make it difficult for you to obtain another mortgage in the next two to three years. The good news is that the foreclosure will have less of an impact on your score with each passing year, and there are many ways you can commence rebuilding your credit immediately.