How Does Foreclosure Work?

Foreclosure is a scary thing that can happen to the home that you love, and in which you’ve invested. Foreclosure happens when a homeowner defaults on their mortgage payment, and fails to respond to the bank’s numerous inquiries and warnings. Foreclosure is a difficult process for both the bank, and for the homeowner, as well as difficult for the neighbors of defaulting homeowners. However fair this may be, living near a foreclosed home, or near several foreclosed homes, can cause a decline in value for the surrounding properties. It hurts to consider that this is possible, but it is! Foreclosed properties could be nice homes in nice neighborhoods every bit as they could be older homes in run-down areas. Part of what controls the number of foreclosures in any country is the rate of full-time employment – more full-time workers means a stronger economy, and a peak number of people who are willing and able to afford to purchase a home.

The Financial Crisis of 2007 cost thousands of jobs, and whole industries went under as a result. Foreclosure peaked in 2010 with around a quarter of a million foreclosures, and by 2016, there were about ten million foreclosures, the highest in a decade and a half since the 1970s. Foreclosure costs money for both the bank, and for the homeowner, so during the recent Financial Crisis, many people who lost their jobs knew that their homes would soon be in danger of foreclosure. The other sad effect of foreclosure is the elevated number of abandoned pets – animal shelters also became busier than ever before. Whereas foreclosure could be the next step in a financially-difficult time, the step that follows foreclosure hurts even more: the long-lasting effects on your credit. It is possible to heal your credit from most anything, even something as devastating as a foreclosure, but this can take years, and in the meantime, you’ll need to be able buy things with credit, and have some for emergencies. Avoiding foreclosure is the best way to save yourself the stress and grief that foreclosure can bring.

How Does Foreclosure Work?

If you have recently purchased your home, chances are that everything in your life is stable, and you’re making your regular monthly payments for your mortgage, and for your home expenses, including your monthly utilities. This series of steady and full payments made on-time is what your bank or lending institution will ask of you, and this will also be spelled out in the contracts that you will have as proof of homeownership. It is always possible, however, that your circumstances will change, and a change in your circumstances can have ripple effect on every facet of your life. If you take a pay cut, or lose your job, your monthly income will drop, but you will still have to pay your bills. It’s not unusual for some to get behind in their bills, and this has a definite effect on your credit. Without great credit, it is difficult to get several types of financing that you may need for a new home, new vehicle, or even to make investments.

Foreclosure happens after you have failed to respond to your bank or lending institution’s notices. Foreclosure almost never happens after the first or second notice of a missed mortgage payment. Different banks will have different rules for the amount of time given to make up for delinquent payments.  If you continue to avoid making your payments, and aren’t paying your mortgage, your lending institution will eventually send you send you a notice of foreclosure on your property. This sends many people into an understandable panic, and fear for the future.

What many don’t know is the receipt of a Notice of Foreclosure is far from too late to save your home, or your credit. Contact your lending institution as soon as you see that you’re going to struggle to pay your mortgage. You may be surprised by the options available to you. Some banks are willing to refinance to help you lower your payments, and even after a foreclosure has been initiated, you may have up to three years to pay back your lender, including fees, and reclaim your home.

What You Should Know

When facing foreclosure, you have the option to try to sell your home to get away from the debt, and pay off as much as possible. To do this, make sure that you seek out a local experienced real estate agent to help you. Hiring a real estate agent when you need help selling your foreclosed home will take much of the burden of the sale off of you – including, possibly, working with your lending institution on the amount that you owe. If you’re not sure of what to do, or if you need a real estate agent to help you, contact one anyway. You’ll be able to make your own decision, but you should always have all of the information that you can get.

A home in foreclosure isn’t just a tedious undertaking for the homeowner, it is also tedious for the lending institution. When your lender forecloses on a home, the home belongs to the bank, and the bank doesn’t want to the cost of maintaining the property. What’s particularly bad for the bank is when a property has been foreclosed, but requires expensive and extensive updates and repairs, and is the case with old and/or poorly-maintained homes. This creates a huge expense for the bank, which becomes even worse because banks must also hire real estate professionals to network and sell the property for them.

Don’t Let Your Home Foreclose

Real estate agents are specially-trained to handle real estate questions and tough situations. If you’re in foreclosure, contacting a real estate professional will be helpful as you try to navigate the situation. Understand that banks can be understanding about personal situations that can affect the flow of a person’s income, but that it is imperative that you keep in touch with your lender throughout the foreclosure process. You may be able to escape terrible debt, a stain on your credit, the ire of your neighbors and uncertainty in your future.