Questions about What Happens When You Foreclose on a House

25 Jun

If you’re falling behind on your mortgage payments, you’ve undoubtedly got questions about what happens when you foreclose on a house. Well, I’ve got answers. Here are some of the questions that are most frequently asked by people facing foreclosure, along with their answers.

Just What Happens in Home Foreclosure?

Most people really have no idea what to expect during the foreclosure process, and there’s no way to set out a timeline for foreclosure without writing a series of articles for each state, because the laws are different in every one of them. However, there is some similarity between them.

When you are first late on paying your house payment, the lender will probably try to contact you to find out when you plan to pay. If you talk to the lender at this point and make arrangements to pay your payment, you should have no further problems. However, if you ignore the lender’s calls, they may assume that you have no intention to pay and start foreclosure proceedings immediately.

By the time you have missed two or three payments, there’s a very good chance that the bank will file for foreclosure. In most states, you will get an official notice. The name of this notice varies, but you typically have 30 days to pay the total amount due plus any fees that have been added in order to avoid home foreclosure.

After the 30-day waiting period, a foreclosure sale will be scheduled. Unless you pay off the mortgage balance in full, plus late fees and legal costs, prior to this date, your home will be foreclosed. There may or may not be a redemption period following the sale, depending on where you live. If there is a redemption period, you can still get your house back by paying the total amount before the redemption period ends.

What Happens after Foreclosure?

Well, first you have to move out, if you haven’t already done so. If there is no redemption period in your state, you may only have a week or two to move. In other states, you could have months. This is an important thing to find out in advance for two reasons: first, you don’t want the neighbors to see you being thrown out by the sheriff; and second, if you move out several months before you have to, you will be paying rent somewhere else when you don’t really need to.

Once you’ve moved out, you probably think the worst is over, but it might not be. In many states, the mortgage company can get a deficiency judgment, which allows them to come after your other assets to collect the rest of the money if your house didn’t sell for a high enough amount.

You could also face a huge tax bill, depending on whether the lender decides to try to collect the deficiency or not. If the lender sends you a notice stating that they are forgiving the balance that you owe on your mortgage after foreclosure, you will have to pay taxes—plus interest and penalties—on the forgiven amount.

What Happens to Your Credit When You Foreclose?

Another thing that happens when you foreclose on a house is that you credit drops, usually by around 200 points. That is a huge drop, and it takes time to recover. The foreclosure will be on your credit report for up to seven years, and you will probably not be able to buy another house for at least two years.

Should I Let the Bank Foreclose on My Home?

Whether to allow your home to go into foreclosure or try to save it is a tough decision. If you really can’t afford the home, you either need to increase your income or face the reality that you are going to lose your house. On the other hand, if the situation that caused you to fall behind on your payments was temporary and is no longer a problem, you may be able to find a way to make up the back payments and get back on track. In most cases, you will be much better off in the long run if you can find a way to save your house from foreclosure.


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