What is foreclosure?
Foreclosure is the worst nightmare of any homeowner. It is
the legal process initiated by the lender of repossessing
the collateral property as the owner has defaulted on the
payments and terms of the contract.
Why would a homeowner default on their payments?
The homeowner can default on his payments because of various
reasons. Most experts and surveys suggest the top 5 reasons
people get behind in their mortgage payments, are:
• Job Loss
• Medical reasons such as - Illness or Injury
• Not prioritizing repayment of the Bills
• Divorce / Separation
• Costly Repairs
What happens after the first default
payment?
Depending on state laws, a formal process can take months
to years. The first step of foreclosure begins on the day
the mortgage payment was due. After you miss you payment the
lender will consider the payment overdue on the 16th day.
He would probably contact you to discuss a repayment plan
to bring your loan up-to-date.
After 30 days of non-payment your loan becomes delinquent.
If the lender suspects future defaults he would set the ball
rolling. He would forward your case to collections. The next
step comes after 90 days of default. The lender would contact
the correct authorities to initiate formal foreclosure proceedings.
Steps you can take to avoid Foreclosure
Communicate with your lender
The worst thing you can do when you default is to ignore your
lenders communication. Be forthcoming and talk to your lender
about the problems you are facing. Chances are you may qualify
for assistance. They would suggest some recourse out of the
situation – maybe a revised repayment plan, loan modification,
short finance or even a short sale.
Act before
Act before the legal process of the foreclosure is started.
If you delay in reaching an agreement with the lender then
he will be forced to file your case under foreclosure. Once
the paperwork for the foreclosure are filed, even the lender
will not be able help you.
Create an emergency account
It is always prudent to maintain an emergency account. Many
do create such accounts and use it for the necessities of
life. Another way to create an emergency account would be
by arranging a personal line of credit or borrowing account.
The operating cost will be low but if you do use it the amount
will be substantial.
Maintain a good credit score.
On an average maintain a good credit rating so that if you
do miss one or two payment, you may get the benefit of doubt.
Meaning instead of taking a drastic step of foreclosure the
lender may consider new repayment plan. However, if you have
a week credit, where in a lender notices that you have defaulted
many times in the past, they may not be so helpful.
