Foreclosure
- What is foreclosure?
- Foreclosure is the legal means that your lender can use to repossess (take over) your home.
- How can a foreclosure affect me?
- A foreclosure can seriously affect your ability to apply for credit in the future. Usually resulting in a twelve year mark on your record, a foreclosure beats out bankruptcy for causing the most damage on your credit. It can take up to ten years before a lender will give you a decent interest rate. If you are upside-down on your property (owe more than it's worth) the lender has the right to order a deficiency judgment for that amount (A deficiency is the difference between the amount owed on the mortgage and the fair market value or the foreclosure sale price, whichever is greater).
- What are my options?
- DO NOT IGNORE THE LETTERS FROM THE LENDER. If you would like to remain in your home you should first call your lender and try to possibly work out a forbearance, mortgage modification, or a partial claim.
- Pre-foreclosure sale: You can avoid foreclosure by selling your property before the date it's taken over by the bank. In some cases you can get cash back from your property.
- Bankruptcy: Bankruptcy will momentarily halt the foreclosure process but will not release you from your obligation to repay your loan.
- Deed-in-lieu of foreclosure: This is only recommended as a last resort. It's possible to voluntarily "give back" your home to the lender. While you still lose your home, you are no longer responsible for any possible deficiency judgments (A deficiency is the difference between the amount owed on the mortgage and the fair market value or the foreclosure sale price, whichever is greater)
- How will this affect my credit?
- Foreclosure and Deed in lieu of foreclosure: With both solutions your credit will be affected the same. Typically with either option you will take a hit of 250-280 points. Example: If your FICO credit score was 680, it can fall as low as 400. This mark will usually remain on your credit for up to twelve years
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