The process of foreclosure can be frightening even if you are armed with knowledge; it is absolutely terrifying if you are uninformed throughout the process.
Here are some things you should know about how foreclosure works.
1) First of all, a home does not go into foreclosure until you have become at least 3 months behind on your payments. Of course the goal is to never get behind at all, but we all know that stuff sometimes happens and some things are beyond our control. This means you do not have to exist in constant worry that if you are a few days late on your mortgage payment for a couple of months that the sky will fall. This is unlikely to be the case unless you are seriously behind. Be proactive and don’t let yourself get that far behind, or start working with the bank beforehand if you know it’s inevitable.
2) The way foreclosure works for you can be dependent on your state or even your county. Once you are three months behind you will either go into what is called judicial foreclosure or non-judicial foreclosure. In a judicial foreclosure, a lawsuit is issued to the homeowner who can elect whether or not to respond. If the owner doesn’t respond the home is auctioned off to the highest bidder unless the bid doesn’t exceed the total amount owed on the home. In a non-judicial foreclosure the lending institution would issue a statement of default and notify the owner of its intent to sell the home. The owner at this time can possibly work to arrange an agreement and payment plan that is acceptable to the financial institution, or file a chapter 13 bankruptcy in order to stop the foreclosure. If this does not happen then the property will be sold.
3) Here is where it gets tricky. If the sale of the home doesn’t result in a sum of money that is at least equal to the amount owed on the home, the original homeowner is responsible for the difference. Failure to pay the difference can be just as detrimental to your credit as the foreclosure itself.
Learn more about what happens during foreclosure and the timeline for foreclosure. The process of foreclosure is not fun; it is not meant to be. Don’t overextend yourself credit wise. Buy a house you know you can afford and live below your means.
