How does foreclosure work?

Question: How does foreclosure work?

Answer: The process of a mortgage lender foreclosing on a home varies from state to state. In some states the process can be initiated after just one missed payment, while in other states it can take years.

But some of the same general guidelines apply:

1. The homeowner becomes delinquent with mortgage payments

2. The lender notifies the homeowner of delinquency and often offers options to become current with payments. (ALWAYS get offers in WRITING, phone deals do not stop foreclosure sales, it must be in writing)

3. The lender sends written notification of upcoming auction/repossession date. AND will alert homeowner when they must vacate premesis.

4. On date notified, ownership of home is returned to lender and foreclosure papers are filed. (and are reported to credit bureaus.

Help for Foreclosure


Be careful, there are a lot of scams out there. Be VERY leary of any company asking you to pay THEM a fee to avoid repossession. All your extra money should be going to the lender to become current. Consider mortgage refinancing if available.

AND stear clear of the "We buy houses for cash" signs on the side of the road. Sounds to good to be true? It probably is.

Hud gives some great advice on how to avoid foreclosure, click here to learn more.

What is Short Sale?

Short Sale definition: the sale of a property, where the proceeds fall SHORT (are less than) the balance owned on a property.

Most people have the false impression that selling a home by short sale means the bank assumes the loss. This is often not the case. They will likely seek the balance of the loan from you once the sale is complete. In other words, if the balance on your loan is $100,000 but you short sale it for $75,000, you the original homeowner will owe the bank $25,000 AFTER the sale of the home. They call this the home "deficiency". Sometimes you can negotiate with the lender to forgive the loan balance (not requiring you to repay), but I have heard less and less of this happening as of late.

Short sales will reflect poorly on your credit, even if the loan shortfall is forgiven by the lender.

A better option to preserve your credit is to sell your home at whatever price you must, then you obtain a personal loan for the differnce and pay off the mortgage in full, never involving the lender in a "short sale" procedure. Wouldnt it be better to pay off a small loan than to have a major ding on your credit?

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