There are a lot of things to consider when you are facing the possibility of a foreclosure. The effect that the foreclose will have on your credit, how much time you will have to move, and whether the bank can come after you to collect if the house doesn’t sell for a high enough price are just a few. Before you can decide what you are going to do about your situation, you need to know what happens when you foreclose on a house.
The Timeline for Foreclosure
The foreclosure process can take anywhere from one to ten months, depending on which state you live in. Foreclosure.com is the best resource I have found for state foreclosure laws. Just follow the link above and click the name of your state for more information on the timeline and the specifics of foreclosure in your state.
What Happens When You Foreclose on a House
Even though different states have different laws, there are similarities between them when it comes to what happens in home foreclosure. Foreclosure follows a similar process, no matter where you are. First, the lender attempts to get you to pay by sending a late notice or calling to remind you that you haven’t paid your bill. At this point, stopping foreclosure is easy, provided you have the money. All you have to do is pay what you owe.
The next step is usually a notice of default. This is just a notice from the mortgage company that you are in default on your mortgage and could face foreclosure if you don’t pay what you owe. The bank has to give you a certain amount of time to pay after issuing the notice of default, but the amount of time they have to wait depends on where you live.
If you still don’t pay, most states require the lender to either post a notice on your property or publish it in the newspaper for a certain number of weeks. Once you get to this stage in the foreclosure process, you may not be able to stop the foreclosure by paying your back payments. The lender may not accept anything less than the loan balance, plus legal fees.
The published notice will contain the property address or description, the name of the mortgagor, the amount owed on the mortgage, and the date and time that the foreclosure sale will be held. In most places, the foreclosure auction is held either at the property that is being foreclosed, or in front of the county courthouse.
What Happens After Foreclosure?
If you’re like most people, you’re most worried about what happens after foreclosure. How much time do you have to move out? Will they throw you out right away? Probably not. In most states, you have a little time to move after the foreclosure auction is held. However, you do need to make sure you know exactly how much time you do have because if you stay longer than you are allowed, you will be evicted from the property.
The other question a lot of people have is, “What happens to your credit when you foreclose?” Everyone knows that foreclosure is bad for your credit, but just how bad is it? Your credit score will typically drop about 200 points once you have a foreclosure on your record. That’s a pretty significant drop, so it’s likely you will have a very hard time getting new financing for anything following a foreclosure.
As for the balance on the property, in many states, the bank can come after you for the difference between what you owed and what the house sold for at auction if the sale price was less than what was owed. This is something you need to be aware of, especially if you are in the position where you are thinking about abandoning your house even though you really could make the payments if you tried to.
What Should You Do?
One question I hear often is, “Should I let the bank foreclose on my home?” Only you can answer this question, because everyone’s situation is different. You need to sit down and evaluate your options first. Can you borrow from your 401(k) to save your house? Can you sell something? If you get the payments caught up now, will you be OK? Or will you just fall behind again in a few months because you really can’t afford the house? These are just a few of the questions you need to ask yourself. Once you know the answers, you will be in a better position to decide whether you should try to stop foreclosure or if you should just let your house go back to the bank.