A foreclosure will effect your life and finances for a long while to come. Specifically, a foreclosure remains as a huge black mark on your credit reports for years. That, among other reasons, is why you should avoid a foreclosure, which is possible by negotiating with your mortgage lender.
Even though it may feel embarrassing or uncomfortable, you can typically keep the banker away by being honest and upfront about why you are missing mortgage payments. Often a banker who knows more information is more willing to work out a deal. Loan modification should be your first option. This is where the bank adjusts certain terms of your loan such as your interest rate and monthly payment to a point where it is affordable for you to make your monthly payment. Alternatively, the bank may add any missed payments to the “tail” of the mortgage.
Some mortgage lenders, would prefer to avoid foreclosures with their properties and will agree to sell a house quickly for less than its market value. This is called a short sale. It can stop foreclosure, but its probably more beneficial to the bank than it is to you. A short sale acts very similarly to a foreclosure in terms of reducing your credit score, which is something you should avoid if you care about your credit score. However, if you do elect to go through with a short sale, you can expect to be able to qualify for a new mortgage much sooner as compared to if you were foreclosed on.
If you do nothing and take no effort to work with your bank, then don’t be surprised when they begin foreclosure proceedings. Here is what will happen:
The bank sends out a Notice of Default after the first missed payment.
Then, the lender will begin contacting you and will accept even small payments to try and keep you current.
After 90 days of missed payments the lawyers typically get involved.
After 180 days of being in default your home could go into an auction. Once the house is sold to the highest bidder, you can leave the property. Or, you will be evicted.
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