The lender will then prepare to put the home up for auction, which includes setting a date and time for the sale. Leave residence. Generally, you do not have to move out until the foreclosure process is complete, which can take a few months or up to a year or longer. However, once your house is sold, you have to leave the property.
You might have some time after the sale date to live in the home, but that timeframe varies by state. It could be a few days or a few weeks. If you remain on the premises beyond your legal rights, the homeowner or lender will start a formal eviction process. If the sale of the home yields profits, the lender is not entitled to excess proceeds over the loan balance plus any fees owed for the foreclosure process. In short, any money earned above the balance and foreclosure costs goes to the borrower.
In the event that your home sells for less than the balance owed, the lender can file something called a deficiency judgment. This is a lawsuit that requests the lender pay the remainder of the loan amount. A lender might try to collect the outstanding balance. Some states, however, have anti-deficiency laws or restrict deficiency judgments after foreclosure. Sometimes, the lender pays the taxes in order to sell the home. Taxes are attached to homes—not people—so once the property is sold the taxes are the responsibility of the new owner.
Some states do not allow collections on payments made by lenders after a foreclosure. Up until the time your house is scheduled for auction, there might still be a chance to halt the foreclosure process. The key is communicating with your lender. The sooner you talk to your lender, the better. Many people feel intimidated by calling their lender and would rather avoid this uncomfortable situation by putting it off, but that can only hurt you in the long run.
They might ask you to provide proof of hardship or other financial information to help you work out a plan. There are also government agencies that offer counseling and other assistance; one such organization is Making Home Affordable.
However, you should watch out for mortgage scammers that prey on desperate homeowners. Make sure anyone you talk to is calling from a number you can verify. To find a legitimate housing counselor, you can visit the U. 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. Select Region. United States. United Kingdom. Natalie Campisi. Forbes Advisor Staff. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. If you have a mortgage for an amount greater than the value of your property, what do you do?
In fact, that's precisely what happened when Tishman Speyer, the American company that invests in real estate, abandoned the 11,unit Stuyvesant Town and Peter Cooper Village in Manhattan in It was one of the largest defaults in history—and the company still managed to remain in business. Tishman Speyer was merely following in the path of many commercial real estate enterprises that had gone before it. Still, it may surprise you to hear this advice: Mathematically speaking, walking away can sometimes be the most prudent choice.
Prior to the national housing bubble of the late s, real estate prices could generally be counted on to increase over time. While a few geographical regions would occasionally see declining values, on a national basis, homes gained in value over time. Up until this point, this had been the long-term trend in the U. However, in and , property values plunged at times, posting double-digit declines in value. If you can rent a similar-type house for less than the cost of the mortgage, some experts suggest that walking away from a house is a sound financial move.
In a scenario where you are underwater on your mortgage and facing rising interest rates due to an adjustable-rate mortgages , the incentive to walk away may be even more appealing. When a housing crisis strikes, the big winners are often renters.
The calculation for comparing the cost of rent to the cost of a mortgage is a simple calculation. One tool to estimate your monthly mortgage payments is a mortgage calculator. Determining the amount of time it will take your home to recover its lost value is a slightly more complex effort.
A little research can help you make adjustments for regional and local markets. Consider an example:. This gets the owner to a break-even level —but there is no profit to show and the owner has paid interest on the loan every year. Obviously, home price appreciation is not assured.
The recovery time is now more than eight years. Three of the most common methods of walking away from a mortgage are a short sale , a voluntary foreclosure , and an involuntary foreclosure. A short sale occurs when the borrower sells a property for less than the amount due on the mortgage. The buyer of the property is a third party not the bank , and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a judgment against the borrower. Then, the borrower is required to complete the payment of all—or part of—the difference between the sale price and the original value of the mortgage.
Not all lenders will agree to a short sale, but if they will, the short sale provides an alternative to foreclosure. In a voluntary foreclosure, the homeowner turns the property over to the lender willingly.
Foreclosure properties may require significant repair or renovation, so bidding for them at auction can be a risky business. These properties can be even more distressed after remaining unoccupied for months or even years.
Factor in competition from seasoned investors who come ready to pay cash, and who often know the market well enough to spot the most promising properties, and you'll see that purchasing a foreclosure can be especially tricky for first-time homebuyers. Buying a foreclosure can nevertheless be a great opportunity if you're willing and able to do some rehabilitation work to get the place ready to resell, or to move in yourself.
Taking a chance on a foreclosure could even help you afford a home if your credit is less than ideal.
If you decide to go that route, you'd be wise to consult a real estate professional experienced in foreclosure purchases. The expense of engaging a real estate agent or attorney for guidance could spare you missteps that would potentially be far more costly. The Bottom Line Foreclosure is a stressful event that neither a homeowner nor a mortgage lender wants to pursue.
Working together, borrower and lender can often find better alternatives. If foreclosure can't be avoided, its impact on your credit and your self-esteem can be significant, but with time both will heal. Throughout the process and beyond, it's important to monitor your credit. Once the foreclosure process is complete, keeping a close eye on your credit can help you rebuild it and get back on track to borrowing again.
A foreclosure will stay on your credit for seven years, and can significantly affect your credit prospects. Maintaining good credit habits going forward is the best thing you can do to make sure your scores eventually bounce back. What's on Your Credit Report? The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually.
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If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well. Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address. To submit a dispute online visit Experian's Dispute Center.
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