What Is a Foreclosure on a House?
Facing a foreclosure can be devastating to a family's financial and mental health. Understanding what a home foreclosure is, the various types and the process can begin the process of prevention.
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Definition
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Foreclosure is a legal process that removes the property owner's rights from a property because of delinquency or nonpayment on the mortgage.
Causes
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There are several life-changing factors that contribute to a foreclosure. Examples include loss of job, reduction in wages, divorce, a rise in mortgage payments because of adjustable-rate loans and major illnesses. In each of these circumstances, the property owner becomes unable to make the monthly mortgage payments.
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Types of Foreclosure
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Foreclosures are divided into two general types: judicial and nonjudicial. Judicial foreclosures are handled by a court of law. It involves a process of judgments leading to a sheriff's property sale. Nonjudicial foreclosures are issued without courts. A delinquency in this process begins with a notice of default and eventually a notice of sale in an auction. In both instances, sale proceeds are applied to the debt, then all other lien holders on the property.
The Process
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The process of foreclosing on a home can take as little as four months and as long as a year. The process varies by state law. The first step begins with a notice of default issued by the bank. The owner is given a specified period of time to bring the account into good standing. If the mortgage payments are still not met, a foreclosure sale date is established and the owner might receive a notice of sale.
Prevention/Solution
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A practical method of avoiding a foreclosure is through sound budgeting and personal finance practices. Banks can also help prevent foreclosure when the first signs of payment difficulty arise. By contacting the mortgage company, owners can be given the opportunity to make alternative arrangements such as reduced payments or deferments over a specified period of time. With the signing of the 2009 Recovery and Reinvestment Act, government-sponsored programs aid in families keeping their homes from foreclosing.
Effects
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Home foreclosures not only affect the property owner, but property values, neighborhood safety, credit scores, the economy and the mental health of those facing this difficulty. When a home forecloses and goes to public sale, it usually sells for a lowered amount, bringing down neighboring property values. Vacant homes present safety concerns. A foreclosure can not only bring down a credit score but can cause stress on a family faced with homelessness.
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