Foreclosure Process and Legal Ramifications
Foreclosure occurs when you can no longer make your mortgage payments. There are several reasons people suddenly can't afford their house payments, whether due to a job loss or having an adjustable rate mortgage that goes up in price. The foreclosure process can be a scary experience, but it may relieve some stress if you know what to expect ahead of time.
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Basic Steps to the Process
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After your first mortgage payment is 30 days past due, you are considered in "default." Before this happens, you should speak with your lender to explore alternative options to foreclosure, such as a forbearance or loan modification. After the third missed payment, you will receive a warning that you have 30 days to bring your mortgage payments current. After the fourth missed payment, a "sale" date will be scheduled; you have until this date to bring your mortgage up to date if you want to try to save your house.
Types of Foreclosure
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There are three types of foreclosure, depending on which state you live in and how much you still owe on the home. In a "judicial foreclosure," your lender turns your case over to its lawyers. If you do not make a payment within 30 days, the local judicial system, usually the sheriff's office, records a foreclosure and publicly announces your home is now a foreclosure property. A trial is conducted, a "writ of sale" is issued, and the sheriff conducts the auction. In a "power of sale" or "statutory" foreclosure, the mortgage company has the right to seize your property and sell it at a pubic auction. If your mortgage has a clause in it indicating that your home is still the property of the lender until it's paid off, it can be subject to a power of sale foreclosure and become a bank-owned property. The lender will mail you a "notice of sale" with a time and date of the auction, and on that date your home will be sold to the highest bidder. In a "strict" foreclosure, the lender can sue the homeowner, and the property goes back to the lender.
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Legal Consequences
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Depending on which type of foreclosure your state allows, you could be sued by your lender. On top of that, foreclosures affect your credit negatively because they stay on your credit report for seven years. Foreclosure also affects your credit card rates because creditors can use the "universal default" rate to hike up the interest rates on your credit cards. An eviction, also known as an unlawful detainer, is a court order to get you out of the home, and it may include a judgment against you for past mortgage payments and legal fees incurred by the foreclosure. Finally, you're still liable for taxes on the foreclosed property.
After the Home Is Foreclosed
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There are several consequences of foreclosure that are not legal in nature but which should be considered as equally important. One of the primary issues families face after a foreclosure is finding a new place to live. If you were already behind on the mortgage, chances are it's going to be difficult to come up with enough money for a deposit on an apartment. And you can't apply for another mortgage until five years after a foreclosure. In addition to finding a new home, you may face questions from your employer, and you may not be eligible for many kinds of loans until your credit score improves.
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References
- U.S. Housing and Urban Development: Foreclosure Process
- MSN Real Estate: 6 big consequences of foreclosure
- U.S. Housing and Urban Development: Are you at risk of foreclosure and losing your home?
- Attorney Foreclosure: Consequences of Foreclosure
- Lawyers.com: Types of Foreclosures
- RealtyTrac: Massachusetts Foreclosure Laws
- Photo Credit house image by Byron Moore from Fotolia.com
