A foreclosure is a severely negative credit event, knocking off points or more from your credit score, according to FICO. Additionally, it stays on your credit report for seven years. The missed payments prior to the foreclosure will also have a damaging effect on your credit. Because missed payments top the list of negative events, your credit score will suffer before the foreclosure process even begins.
Natalie Campisi is a Los Angeles-based reporter who covers mortgages and housing news for Forbes Advisor. Previously, she was the senior mortgage reporter and analyst for Bankrate.
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What Is Foreclosure? In a judicial foreclosure, the lender files a lawsuit to initiate a foreclosure. The borrower goes to court to fight the lawsuit; if they lose the house will go into foreclosure and can be sold at auction. Non-judicial foreclosures rely on power-of-sale clauses in the mortgage or deeds of trust to recoup the balance owed if the borrowers stop making payments. There is no court hearing, and the process generally is faster than under a judicial foreclosure.
The mortgage clause authorizes trustees who are appointed by the lender to sell the home to pay off the balance. The lender is obliged to follow out-of-court steps laid out by the state and the mortgage agreement to begin the foreclosure process.
When Does Foreclosure Begin? Foreclosure Timeline In both judicial and non-judicial states, the initial process is typically the same, beginning with your first late monthly mortgage payment.
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The first thing you should do if this foreclosure option appeals to you is look at current market rates. Administratively, doing a deed for lease is similar to the deed in lieu of foreclosure process, and varies from state to state and lender to lender. Once you fall behind on your mortgage, call the bank to see if this is a foreclosure option they offer.
A short sale is when you sell your house for less than what you owe. Selling the house for a price that will allow them to pay off the mortgage is impossible. If you want to go down this route, you will have to get approval from the lender. Selling a house via short sale is going to take much longer than normal.
Just the process of getting approval to do a short sale from the bank may take months. Then once you get an offer, it might take months for the bank to accept or deny. For that reason, your house might sit on the market longer than normal also because buyers know they will have to wait a long time to get their offer approved. There are many different types of bankruptcy lined out in the federal Bankruptcy Code.
Each type of bankruptcy has a different chapter in the code, which is usually how people refer to each type. The chapters relevant to homeowners facing foreclosure are chapter 7 and chapter Chapter 13 bankruptcy , by contrast, establishes a year payment plan to pay off your debts. Since chapter 13 bankruptcy is the type that will most likely keep you in your house, that is the one I will describe.
You start a chapter 13 bankruptcy by filing a petition with the bankruptcy court, which will include a detailed summary of your financial situation, including a list of debts, assets, tax returns and more.
You will have to pay a filing fee to the court, although the fee is nominal. Next, the court will appoint an impartial trustee to administer the case. This trustee will monitor all the details of the case but will also serve as the disbursing agent, basically a go-between the debtor and creditors.
There are a lot of administrative steps involved but the general idea is that you come up with a 3 — 5-year plan to repay creditors and get it approved by the court.
The trustee will then execute the plan, collecting payments and assets from you and paying the creditors. Chapter 13 bankruptcy is a very complicated, tedious legal process, and anyone interested in this foreclosure option should talk to a qualified attorney before proceeding. The default foreclosure option is to do nothing. Just wallow in your own crapulence and let the banks walk all over you. You will lose your home, your credit, and maybe more. Being about to sell your house in foreclosure is a matter of timing and the amount owed relative to the property value.
Usually people know that life changes are going to make it difficult to make the mortgage payments. The easiest would be to sell it before you even miss a payment. This will help protect your credit, minimize stress, and frankly, keep the banks completely out of the process. Simply find a real estate agent and sell the house. If you owe more than the house is worth, things get more complicated.
A deed in lieu of foreclosure will hurt your credit score, but not as much as a short sale or foreclosure.
Foreclosure is obviously incredibly detrimental to your credit score. Not only will it severely drop the score, it will remain on your credit report for seven years.
The exact amount that your score is affected will depend on how high your score was before a foreclosure. Someone with an credit score will lose a lot more points than someone with a credit score. There are other factors involved, but in general, a foreclosure will drop your credit score by points.
In some cases, credit scores have been reported to drop by up to points! Talk about a kick in the teeth. There may be some conspiracy theories as to why foreclosure affects your credit score so much, but the truth is, your house is where you live. What does this mean? You can still borrow if you have a foreclosure on your record. You present a financial risk to any lender. They obviously want to make sure they get their money back.
And although a foreclosure stays on your record for seven years, you can still be eligible for another home loan before that seven years has passed.
You might be eligible for an FHA loan as little as one year after a foreclosure. Understanding how much a lawyer is going to cost is extremely difficult. Each lawyer will charge different rates, and many might even charge different rates for each client. Here are some of the things that will affect fees attorney charges when helping with foreclosures:. Senior attorneys are going to charge a lot more. They should. You get what you pay for. In a lot of instances an attorney that charges half the price of a more experienced attorney will take twice as long to accomplish the same thing.
If you have an open and shut case, or simply need help with some paperwork, you might not have to pay much. If you have a very complicated situation and intend to fight the foreclosure all the way to the Supreme Court, you will need a much more experienced lawyer. A much larger case that will bring a lawyer lots of hours may get a lower rate than someone who just needs a few hours of counsel. Attorneys charge in different ways. Some will charge hourly rates, others will charge fixed rates.
You should definitely ask for an estimate on how many hours the lawyer expects to spend on a case. Other lawyers will charge a contingency, which means you only pay if you win.
The exact timeline will depend on your lender. Most will begin sending you notices, warnings, and other hate mail after your first payment. If you act soon enough, you should be able to keep your house and minimize the financial destruction. After your 3rd missed payment, or between days delinquent, most banks will begin formal foreclosure proceedings. In Texas, the process can move pretty fast once the bank begins foreclosure.
The bank will give you days to pay the loan in full. So in all, if you continue doing nothing once you receive notice of foreclosure, you can then expect to have your house to be sold in less than 2 months. Adding insult to the injury, there is no redemption period for mortgage foreclosures in Texas. Once foreclosed on, you will have to move out or you will be evicted with little or no hope of getting your home back. In addition to losing your home, your credit will be devastated, and you will likely still owe money — either to the bank or the IRS.
Doing nothing is not a good option in most cases as your credit will be destroyed and you will have to deal with a costly lawsuit or tax liability. Many lenders offer a repayment, workout or forbearance plan which requires the borrower to catch up with payments over a period of up to 18 months. Repayment plans work if you had a short-term hardship and are now able to make regular plus catch-up payments. Many view bankruptcy as their only option to stop foreclosure.
While bankruptcy will temporarily halt the sale, the temporary benefits may not be worth the damage it can cause. Unless you are overwhelmed with non-mortgage debt, in most cases there are better options that should strongly be considered.
If you experience a temporary hardship that has ended and you can begin making regular or reduced payments again but not catch-up payments , a loan modification may be your best option. Substantially better results are achieved with help from non-profits, law firms , or loss mitigation consultants that can help navigate the process.
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