For many middle-class Americans, one of the tried and tested stepping stones of “success” is to be a homeowner. It’s a long process and often requires pain and discipline, but the reward can be very worthwhile.
However, for others, it can turn into a nightmare.
If you’re someone who’s living this nightmare you’ll know this story well. It goes something like this… You took a loan that was too big for you to handle, or you bought a house relying on an income that isn’t as stable as you once thought it was. There is an endless list of circumstances that lead up to foreclosure.
The number one thing you should know about this topic is that it is 100% avoidable, and is the very last resort in a series of unfortunate circumstances.
The process of foreclosure begins with, you guessed it, missed mortgage payments. Depending on the state that you live in it can take anywhere from 1 to 3 months for your loan to go into default.
This will cause your bank to take action against you and file a motion of foreclosure through various legal actions.
You will then be sent a notice of pending foreclosure, and you have the opportunity to meet with a mediator and your lender, for up to 120 days after the initial submission/filing of foreclosure. The options on the table at this point would be forbearance, deferment, a lump sum payment, or a short sale.
Most believe that this meeting is your last real opportunity to find a solution that will not dissolve any and all financial liquidity you might have. If you choose not to participate in this meeting, the mediator will file a report with the judge overseeing the case and the motion will move forward into foreclosure.
One of the very last hail marys you can make is to file bankruptcy which will halt this process, but that is a pit you will have to fight very hard to get out of.
Another unsavory consequence is that if you still occupy the home when the house is sold on a foreclosed sale, you will be evicted and removed by law enforcement.
The very final nail in the coffin is that if the foreclosure sale does not cover the original cost of the mortgage a deficiency judgment can be filed against you and sent to collection to cover the balance.
This is by far, the worst-case scenario and there are many options leading up to this point that can save you or even keep you in your home. Deferment or forbearance can be viable choices, but they require action before you get a notice of foreclosure in most cases.
If you decide to take no action and end up filing bankruptcy the consequences of that choice will follow you for the rest of your adult life. With a strike like that on your financial record, you could have a hard time getting something as simple as a credit card for many years to come. That is a tough way to live in today’s age.
What many people don’t know is that there is another option outside of forbearance/deferment and bankruptcy and that is called a short sale.
If you are undergoing any of the above-mentioned circumstances, a crucial step would be sitting down with legal council or a team that has vast experience dealing with avoiding forclosure in order to understand your rights as a borrower. If you are in the scenario and your bank is taking legal action against you, it is best to understand the possible outcomes of the entire process.
If you proceed with the short sale, your home will be sold at a lesser value. It is negotiated with the bank to only cover the remaining portion of your mortgage.
In this action, you will lose all the equity, if you have any, you have gained in your home, but you will be absolved of the responsibility of th loan. This also has its negatives, but if you are in a bad enough state that you are considering bankruptcy to get out of foreclosure a short sale is a much more viable option.
Although you will lose the money you’ve spent on your mortgage thus far, the huge benefit here is you will be able to get another home loan down the road should you choose to.
You can also do this after a foreclosure after a 3 year waiting period in both scenarios but the difference is that a foreclosure will stay on your credit report and will take your credit score to a very low level.
A short sale is the same as defaulting on any loan however in this situation when you are trying to purchase a house your score will be impacted less.
The ominous title of “foreclosure” notice is not a death sentence to having a better life. There are many ways out of a bad situation if you choose to be involved.
Know your rights, seek counsel, and meet with someone who can help you weigh all options before you make any decision. In the end, the choices you make today will have a lasting impact on the future you want.