What Happens in a Foreclosure After a Notice of Default?
Lenders send a notice of default to mortgage holders who have missed multiple payments and will soon default on their mortgage loan. The notice formally initiates the foreclosure process. Once foreclosure begins, homeowners typically have three months to compensate for their missed payments before the lender sells the house to protect its investment.
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Credit Score Falls
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Credit bureaus note when lenders send you a notice of default, and they lower your credit score in response. Lenders then become more reluctant to issue loans or offer refinancing options, and you consequently have fewer options for paying your outstanding balance. In addition, lenders will begin adding fees to your balance to cover legal costs when they send the notice of default; this extra debt leaves you at risk of missing payments and further lowering your credit score.
Countdown Begins
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Mortgage holders typically have 90 days to bring their account into good standing after a lender issues the notice of default. Failure to make sufficient payment will result in the lender sending out a notice of sale--this second notice marks the day when the lender will sell the house, which is usually 15 to 30 days after issuing the notice. If you do nothing and allow the foreclosure to proceed, your credit score will drop further and lenders may pursue you for any debt that the sale did not cover.
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Further Actions
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Mortgage holders have the option of refinancing their loan or working out a new loan payment plan with their lender, and both of these options will stop the foreclosure process. If you don't have the money to bring your account back to good standing, you can sell the house to pay off the mortgage. If you owe more than the house is worth, you can negotiate a "short sale," which involves selling the house for the best price possible and the lender accepting the proceeds as settlement. Some lenders accept a "deed in lieu of foreclosure," which is a direct transfer of ownership, but they only accept this option when the mortgage holder's debt is small.
Contact from Scam Artists
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Criminals also note when you have received a notice of default, and they may deceptively ask you to sign over your property or refinance your mortgage at unreasonable terms. In most cases they will falsely promise you assistance to steal the property. If you need reputable advice, call your lender's loss mitigation department, an attorney or a foreclosure avoidance counselor working for the U.S. Department of Housing and Urban Development (see Resources).
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References
Resources
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