Category Archives: The Foreclosure Process

Consequences of Foreclosure

Wondering what happens after the dust settles on a home foreclosure? Unfortunately, after the house is taken back by the lender all is not over.

Let’s look at a few of the consequences and some possible options that newly foreclosed families may face.

Finding a new place to live

The first concern a displaced family faces after a foreclosure is where to live. Often times a family will need to move into an apartment, but keep in mind landlords often require first and last months rent as well as a damage deposit which could add up to several thousand dollars. Another factor that may come into play is your credit score and credit history. When a landlord checks into your credit history and finds a foreclosure, it sends up a red flag as it indicates the potential tenant hasn’t paid their housing bills.

If you find yourself three or four months away from being evicted from your home, it would be wise to save the money you would be spending on monthly mortgage payments and set it aside for a new apartment lease.

Credit score effects

Now that you have a foreclosure on your credit report other creditors, especially credit card companies now consider you a higher risk. Often times credit card companies employ a “default rate” for people with a certain credit score. If your credit score now dips below a certain level they could raise the interest rate that you pay as high as 30 percent. You may also have a harder time getting a good rate on consumer goods such as appliances and automobiles.

If you were able to keep up on your other debt such as credit cards and auto loans during the foreclosure process you may be able to build your score back up within 24 months.

Purchasing another home

One factor that a lot of people fail to realize about foreclosure is that after completion you may not be able to get a loan on a new house for three to five years.

If you are looking at an FHA loan you will have to wait a minimum of three years before you can take out another home loan. A Fannie Mae loan is even longer, they just increased the length of time from four to five years. You may have to rent for at least three years while practicing good bill-paying habits before you can get into a house again.

The tax bill

When debt is forgiven such as a foreclosure it can be considered a taxable event by the IRS. This can happen because the money that you no longer have to pay back to the loan company is considered income.

If you open up your mail box and find that you are hit with a tax bill you still may not have to pay it. The IRS may allow taxpayers to escape the bill if they are insolvent, this is one of those cases where the advice from a certified tax professional comes into play.

Hopefully this article brought to light the possible consequences that can happen after a foreclosure. With proper knowledge and planning the issues mentioned above hopefully can be limited.

Foreclosure Timeline

If a home owner falls behind in their mortgage payments, they can expect lenders to respond in different ways at different times. Here’s a general look at a timeline from late payment to foreclosure.

These timelines are not intended to be all-inclusive, nor are they intended to cover default situations in all states. Home owners are advised to seek professional legal counsel in any default proceeding in the specific sate or county where the house is located.

Day 1
The home owner is unable to make their mortgage payment on the first of the month.

Day 16 to day 30
The lender assesses on late fee on payment.

The mortgage company that processes the home owner’s payments, attempts to make contact with the home owner to find out what happened.

Day 45 to day 60
The mortgage company sends a letter of “demand” or “breach” to the home owner letting them know that the terms of the mortgage have been violated.

The home owner is given 30 days to resolve the situation by bringing the delinquent amount up to date.

Day 90 to day 105
The mortgage company refers the loan to either its foreclosure department or other private firm to start the foreclosure proceedings.

Depending on which state the home is located in, the mortgage company ‘s representative may record any or all of the following. Record a formal notice of foreclosure at the courthouse in the county where the house is located, attend hearings on the case and make the appropriate court filings and publish details of the debt in the local newspaper.

Day 150 to day 415
The house is sold at an auction or foreclosure sale. The wide time range is due to the different requirements of each state.

Home owners in states that use judicial foreclosures or those in which mortgage companies have to reclaim property titles via the court system, can get close to a year to bring their loan current before the sale. Those in non-judicial states may have as little as two months or less.

Day 150 to day 415 or longer
After the sale of the foreclosed home, some states grant borrowers a “redemption period” in which they can repurchase the property. Some states can force consumers out immediately following the auction.

Understanding the Foreclosure Process

The foreclosure process may seem daunting at first, but the basic steps are not that complicated.

The foreclosure process will normally begin around three-to-six months after the borrower misses the first mortgage payment. At this point of the process, the borrower may be able to work something out with the lender. Avoiding the lender will typically accelerate the foreclosure process. If the process commences, the borrower has the right to stop the foreclosure at anytime during the process by paying off the debt.

One caveat about the foreclosure process – each state is different in their timelines, as well as some of the steps in the process. However, there are some basic steps that most states follow. Depending on the state, the foreclosure can take anywhere from 27 days to over a year. The process is generally broken down into two major phases: Pre-foreclosure Period and Notice of Sale / Auction.

Pre-foreclosure Process

The pre-foreclosure phase normally begins after the lender files a Notice of Default or Notice of Pending Lawsuit with the court. The lender is required to notify anyone impacted by the default. There is a specified timeframe between the court action of the Notice of Default and the second phase of the process. However, this timeframe differs for each state. For example, California requires three months after the Notice of Default before the lender can file a Notice of Sale / Auction, while Florida can be 20 days.

Notice of Sale / Auction

After the state-authorized prescribed timeframe has passed, if applicable, the lender can then file a Notice of Sale or Notice of Auction. Normally, the notice must be published for a specified amount of time. Once the auction occurs, the winning bidder may take possession of the property in a certain amount of time if no one disputes the sale.

Redemption Period

In some states there is a redemption period, where a borrower may redeem the property if the note and applicable fees are paid during the redemption period. However, not all states provide for a redemption period.

While the foreclosure process is similar in most states, it is imperative to know the steps and timelines individual state mandate.