Foreclosure is the legal process of a homeowner being evicted from their property due to a default on their mortgage loan. In essence, it is a process where the lender, usually a bank, takes possession of the home from the borrower and puts it up for public auction. If the property is sold at auction, the profits go to the lender to make up for the loan default. The homeowner is then responsible for any costs associated with the foreclosure, such as court fees, legal costs, and any remaining mortgage balance.
The foreclosure process is a lengthy one and can range from weeks to years depending on the state. The foreclosure process begins with the lender sending a Notice of Default (NOD) to the homeowner informing them that they are in default on their mortgage payments. The homeowner then has a set amount of time to respond or take action to resolve the default. Failure to do so results in the NOD being sent to the local courts and a foreclosure sale date being set. At the foreclosure sale, the home is sold at auction to the highest bidder. If the home is sold, the proceeds go to the lender to cover the defaulted loan amount. If it does not sell, the lender then takes possession of the home and the homeowner is evicted.
How Does Foreclosure Affect You?
Being a victim of foreclosure can have a major impact on your financial security and credit. Foreclosure can make it difficult to secure future housing as it is likely to appear on credit reports for seven years. It can also lead to a decrease in credit score as a result of delinquencies on payments. In addition, a homeowner who defaults on their mortgage and enters foreclosure may be subject to legal action by the lender in order to recoup their losses as well as owe any remaining mortgage balance.
Due to the far-reaching impact a foreclosure can have, it is in a homeowner’s best interest to avoid foreclosure at all costs. Homeowners should consult with a qualified financial advisor or real estate attorney to discuss potential options, such as refinancing, loan modification, bankruptcies, selling the home, or short sales. Having a professional evaluate your situation can help you make the best decision for you and your family.