What You Need to Know About Foreclosures
Foreclosures are unfortunate, and countless factors can bring on a foreclosure such as loss of employment, illness or divorce. Lenders are prepared to help borrowers avoid the foreclosure process. But sometimes borrowers are unable to rectify their financial problems, which makes foreclosure inevitable.
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Definition
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Foreclosures are legal proceedings that involve a mortgage lender taking back or repossessing a home because the owner or borrower fails to make the mortgage payment.
Prevention/Solution
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Solutions to prevent foreclosure are available, and communication with your mortgage lender can help you retain your property. Provisions such as mortgage forbearance or loan modification can result in the temporary suspension or the reduction of mortgage payments.
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Credit History
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Because a foreclosure involves repossession of your home, lenders will report the foreclosure to the credit bureaus, which results in a lower credit rating.
Effects of a Foreclosure
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Securing a mortgage loan after a foreclosure is nearly impossible. Many lenders impose a waiting period. For example, you'll have to wait at least three years to obtain an FHA mortgage after a foreclosure.
Warning
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Deficiency judgments are common after a foreclosure. Your mortgage lender will likely sell the property after the foreclosure. If unable to recoup the full mortgage balance, they'll send you a 1099 for the difference, and you'll have to pay taxes on the remaining balance.
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