What Happens If I Can't Pay My Mortgage Foreclosure?
Unexpected events can leave you struggling financially. If you are unable to pay your mortgage, you may be concerned about the possibility of foreclosure. After missing a single payment, you will be considered in default. Depending on your state's foreclosure laws, the foreclosure process may begin immediately. It is important to understand the process and your options.
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Judicial Foreclosure
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In a judicial foreclosure, the lender must file a lawsuit against the homeowner to obtain an order of foreclosure. You will receive a copy of the complaint, either by mail or delivered directly. It is important for homeowners to respond to the notice within the specified period of time. Since each state has its own foreclosure laws, the timeline will vary. If the court finds the homeowner in default, the lender will be granted permission to foreclose. The home will be sold through a public auction. In some states, homeowners have the option to regain ownership of the home after a sale. The right of redemption can range from several days to more than a year. The entire balance remaining on the loan plus all fees will be required before the redemption period expires.
Non-Judicial Foreclosure
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Non-judicial foreclosures do not involve the court. If your mortgage deed of trust contains a power of sale clause, the lender has the authority to foreclose without filing a lawsuit. The lender initiates the foreclosure process by recording a notice of default at the county recorder's office. You will also be mailed a default letter. The notice is often posted directly on the property. It may also appear in a public place and/or be published in the local newspaper. After the legally required amount of time passes, the foreclosure sale will be conducted. Non-judicial foreclosure auctions generally require the highest bid to be paid in cash or the cash equivalent.
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Consequences
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In addition to losing your home in a foreclosure, your credit score will suffer. A foreclosure will affect your ability to purchase or even rent another house in the future. Foreclosure remains on your credit for at least seven years. Depending on your state's foreclosure laws, the lender may be able to pursue a deficiency judgment for the difference between the sale price and amount remaining on the loan.
Assistance
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Homeowners on the verge of foreclosure can explore preventive options. The Department of Housing and Urban Development approves counseling agencies throughout the country that offer little or no-cost services to homeowners. Counselors review your loan details and finances to explore possible options. The federal Making Home Affordable program allows homeowners to refinance or modify their loans to potentially reduce the mortgage payment. Communicate with your lender to discuss alternatives, such as a short sale. In a short sale, the lender agrees to accept less than the balance remaining on the home. If the home does not sell, your lender may consider allowing you to relinquish ownership rights through a deed in lieu of foreclosure.
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