Foreclosure is a complicated and daunting process where an individual takes out a home mortgage loan and essentially defaults or falls behind on the mortgage to the point in which the lender takes possession of the property and sells the home to recoup their money. The effects of foreclosure can linger and cause issues for seven years until eternity.
The Two Forms of Foreclosure
A homeowner may face two types of foreclosure; both have similar effects but different stipulations on recovering your house.
- Tax Lien Foreclosure: Property tax foreclosure occurs when homeowners miss multiple annual tax payments. A lender can sell a tax lien property in two ways: a tax lien certificate or a tax deed sale. The tax lien is where a government agency will either sell the house at auction or the lender file the foreclosure lawsuit through the court against the borrower, also known as a judicial foreclosure.
- Mortgage Foreclosures: This type of foreclosure tends to occur more often than tax foreclosure; mortgage foreclosure is when the borrower falls behind on their monthly payment. Mortgage foreclosures happen much sooner than tax foreclosures; usually, the lender will begin the process after four consecutive missed payments, although this time frame can differ from state to state or lender to lender. A key takeaway is that lenders tend to avoid foreclosures because it’s time-consuming and costly, and the lender may struggle to recoup every fund. The lender will start the foreclosure auction at the amount still owed on the mortgage.
Depending upon the state, in some circumstances, the previous homeowner can retake possession of the house during the redemption period. The odds are better for a homeowner gaining ownership back in the situation of tax foreclosure.
The Effects of Foreclosure
Foreclosure is overwhelming; foreclosure’s effects vary widely, from financial issues to health concerns. Foreclosure is very stressful and costly; losing your property and possibly being homeless can cause elevated stress levels, resulting in a heart attack or another possible issue. Foreclosure strongly affects an individual’s financial position, and foreclosure will damage a consumer’s credit and stay on the credit report for seven years. These negative impacts caused by foreclosure can prevent an individual from purchasing another house or even taking out a car loan/personal loan. In the future, you’re more likely to face high-interest rates and a demand for a larger downpayment on any item.
A negative factor often overlooked about foreclosure is the overall quality of life for the individual who had lost their home. A foreclosure will force a homeowner to downgrade their property, usually forcing the family to relocate to a neighborhood with a low-quality life, from crime to school ratings and even air quality. The stress caused by facing foreclosure has resulted in divorce for many families.
How to Avoid Foreclosure
When facing the possibility of pre-foreclosure, it’s essential to remember that the lender does not prefer going through the lengthy foreclosure process; at the end of the day, the lender wants to receive their money and continue the terms of the agreement. Most lenders understand that life comes at us fast; that’s why most lenders will work with the borrower on a repayment plan allowing missed payments to be paid back with installments and possibly some interest. Also, discuss the possibility of loan modification, adjusting the terms typically lowering interest rates but no reflection on the principal owed.
An option for avoiding pre-foreclosure will be refinancing. The ability to refinance will change the terms considering it’s a new loan, usually lowering the rates and buying the borrower time to figure out the long-term plan of paying the mortgage and taxes or discussing the possibility of selling the house.
The most effective method to avoid foreclosures is to sell the house to a qualified cash buyer. These real estate investors provide a quick sale within two to three weeks. If you’re a homeowner that may lose your house, it’ll be essential to act fast to avoid the long-term effects of foreclosure. Cash property buyers don’t require any repairs, so there are no upfront costs to sell the house.
We understand that foreclosure is overwhelming, but there are many tips to help a homeowner avoid foreclosure. If you want to explore your options and learn how to protect yourself, go now to this page for advice on pre-foreclosure prevention and the best way to maximize profit if forced to sell your house. You do not have to go through this process alone; our experience assisting dozens of homeowners in avoiding the long-term effects of foreclosure has helped us establish the perfect plan.