A foreclosure initiates when your mortgage company is unable to collect your mortgage payments. Your lender forecloses and takes possession of your house to sell the house in order to be paid. The process takes about four months. During the first three months, you can bring your loan current and remain in your home. After three months, you will need to refinance the property if you want to keep it. You will find this difficult with a foreclosure on your credit report.
A foreclosure action starts when your lender files a notice of intent to foreclose. If you do not respond to this, the lender will file a formal notice of foreclosure. You will receive a foreclosure notice in the mail and your lender will put another notice near, or on, your front door. If you do not bring your mortgage current during that period, you will receive a notice of sale, specifying the date and time that your lender will sell your home at auction.
When you receive the notice of intent to foreclose, contact your lender and ask if you qualify for a loan modification. If possible, you should ask this as soon as you determine you are having financial difficulties. A loan modification will allow you to remain in your home with a lower monthly mortgage payment. If your payments are delinquent, your lender can usually add them to the principal balance so that you do not need to catch up on your payments.
If you do not qualify for a loan modification, ask about a short sale. A short sale will let you sell your house for its current market value. It will also allow you to remain in your home until it sells. Your lender will expect you to cooperate with the real estate agent you select to sell your home. This will give you some time to save money for deposits and moving expenses while your home is for sale, since your lender does not expect you to make mortgage payments while the house is on the market.
If you do not arrange for a loan modification or a short sale, the foreclosure sale will take place on the specified sale date. You and any other residents in your home will have to move out within a few days of the sale. Short sales and loan modifications will always be a better alternative to foreclosure. Foreclosures cost your lender a lot of money. The lender will come out ahead if you can work out an arrangement instead of letting your home go to a foreclosure sale. In addition, you will avoid a foreclosure on your credit report. Foreclosures remain on your credit report for seven years. You will not be able to obtain a conventional mortgage loan for four years or an FHA loan for three years. This is assuming that you work hard to establish additional lines of credit.