What is foreclosure?
Foreclosure is a process by which the mortgage provider takes over the property, evicts the owner and sells it. This happens after the owner stops making payments on the mortgage principle plus interest agreed upon in the mortgage contract. This is different from short sale where the owner gets a permission from the lender to sell the property at a price lower than money owed on the property.
When does the foreclosure process begins?
The owner of the house is legally obligated to make monthly payments on the mortgage. Failure to do so will become a violation of the contract terms. Whenever the owner stops paying or does not pay on time, the loan becomes delinquent.
Once the borrower defaults or does not make payments, the foreclosure process will begin. The lender will notify the owner about his/her conditions. If the owner is able to catch up on payments, the foreclosure might not happen.
What happens after the foreclosure?
Banks and money lenders do not like foreclosures. Basically, no one like foreclosures. The foreclosure process costs money both the owner and the lender. However, there will be times when the lender pulls the trigger and takes the property.
After the property is taken, the lender or bank will sell the property through auction. If the deal goes through, the lender will keep the money and move on. On the other hand, if the property is not sold; the property will be added to the foreclosed properties portfolio.
The owner of the property will find a way to survive. We are humans. We always find a way.
Does foreclosure affects my credit score?
The answer is yes. Foreclosure is one of the biggest credit score destroyers. Your inability to meet your mortgage contract requirements proves that you are not in control of your financial situations. This failure damages your credit score real bad. You can easily lose 160 points from your credit score due to a foreclosure.
Foreclosures are considered to be derogatory marks and can remain on your report up to for 7 years. It will take a long time to rebuild your credit score.
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