When you get behind on your mortgage payment, the bank may foreclose on the property. They typically don’t look to foreclose until an account is around 4–6 months’ delinquent. The bank must protect its asset. If they cannot get any money from you for the mortgage, they would rather take a loss and recoup some of their funds.
Preventing a Foreclosure
The bank will begin calling and sending past-due notices as soon as you get behind on payments. Many people ignore these calls and letters because they want to avoid the issue at hand. However, most banks are more than willing to help you with your account. There are things that can be done to stave off a foreclosure. For instance, a loan modification can lower interest rates and payments. If there had been a significant change in income or you have faced a life altering illness, the bank may be willing to help. Even if a loan modification isn’t possible, they can often tack on payments to the end of the loan to get the account current. There are many things that can be done, so avoidance is never a good thing.
After a period of attempts to settle the account, the bank will send a notice of forbearance. This means that they intend to repossess the home due to your default. They cannot just take the home unless you willingly hand over the keys. Consequently, they must petition the court to take control of the asset. There is still the possibility of settling the account before and during the court proceedings through redemption. This is a set period when you can pay the amount you owe and bring the account current.
Timing the Foreclosure Process
After court, the judge will give a set date that the bank can take control of the property. They usually allow 30 days, from the date of the hearing, for you to vacate the property. The home will be sold at a sheriff’s sale or put on the market through a local realtor. You will be given a notice about the sheriff’s sale. You can attend and bid on the home if you can secure financing. Once the home changes ownership, the new owners must follow through with the eviction. If you are still in the home, a sheriff will come and set the items out on the street. It is an embarrassing ordeal that is completely unnecessary and avoidable. The court does keep everyone informed throughout the entire process so there are no surprises.
Because foreclosures stay on your credit record for up to 10 years, it can have a devastating effect on your credit rating. Thankfully, there are some options that should be considered. A real estate company or Utah home builder can list the home through the short-sale process. They will attempt to sell the home for a drastically reduced price, but you must have the bank's approval first. Before they entertain the idea of taking a loss, they will want to verify a hardship exists. They will need documentation from banks or employers. This type of home sale is a bit different, but the agent and bank work together. This can still hurt your credit score, but it is better than having a repossession on your report.
Anyone can fall on hard times. There may be months when paying the mortgage is just not possible. Whether it was a loan with a flexible interest rate or a health crisis that put you behind, most banks are more than willing to help. There are numerous programs that can turn a bad situation around. When foreclosure is inevitable, a short-sale is a great option that should be utilized. It is a setback, but in time your credit score will improve. The foreclosure will fall off your credit report in 7–10 years. The focus from this point is to rebuild and restore your credit rating. It's a difficult task, but it can be done.