Property foreclosure is the last thing a homeowner wants to face. Unfortunately, thousands of people face foreclosure every year. Many homeowners think that a foreclosure notice means they will eventually lose their home, but that isn’t always the case. A foreclosure notice is only one step in a process that can take months. During that time, you’ll have many opportunities to bring your loan current and keep your house, but only if you understand how the foreclosure process works.
Below you’ll find the basic scenarios related to a foreclosure notice. Keep in mind that this is a general overview and that each state has its own laws regarding the foreclosure process.
You Pay the Mortgage Allowing You to Keep Your Home
This is the most ideal outcome out of all the possible scenarios though the most unlikely. When you pay off the note, you satisfy the lender, the foreclosure becomes null and void and you end up keeping your home.
Occasionally, people are able to raise enough funds to stave off foreclosure, though it typically requires some form of refinancing which might only postpone the inevitable or cause a homeowner to go into more debt.
If you do decide to refinance to pay off your foreclosure note, make sure that you are able to secure a loan at a reasonable rate. Replacing your mortgage debt with a higher interest debt has the possibility of forcing you to declare for bankruptcy at some point in the future.
You Pay the Mortgage by Selling Your Home
If you are unable to refinance or believe that refinancing will only cause you to go further into debt and you are unable to pay off the loan with other assets, the next option is to sell your home. If the funds you receive from selling your home are enough to satisfy the loan, then your debt with the lending company is settled. However, if you don’t buy another home and you profited from selling your home, it’s possible that you’ll be assessed with a capital gains tax liability.
Make sure to acquaint yourself with the various tax laws as through the end of 2014 you may be eligible to exclude canceled debt from your tax return if it relates to qualified principal residence indebtedness and meets the requirements of The Mortgage Forgiveness Debt Relief Act.
You have until the moment the lender auctions off the home to sell it yourself. However, if you owe more on the mortgage than the home is worth, you will either need to make up the difference in cash, or get the bank to agree to take a lower amount in a short sale.
The Lender Auctions Your Home
If you weren’t able to come up with the funds to pay off the foreclosure note, then the lender (typically a bank) will take over the process of selling your home.
The foreclosure process differs from state to state, which each having their own specific procedures. However, typically whoever has made the highest bid will have the right to the deed of your property. Once they pay, in cash, they will receive the deed and all the rights and privileges attached to the property.
It might be possible for you to still stay in your home as a renter. The new buyer may be willing to do a lease-back option, where they offer you, the previous owner, a lease-purchase/rent-to-own contract which would then allow you to continue staying in your home.
New buyers who look to foreclosures as a way to make money may be willing to engage in this strategy, particularly in a down market, as it’ll allow them to immediately generate income while waiting out the market until they can get the return-on-investment that they were hoping for.
Additionally, if you were right on the brink of being able to repay your balance, but didn’t quite manage it in time, you still may be able to keep your home. Depending on the state, some will allow for a redemption period which can range from just a few days to a month. During this period of time, if you’re able to come up with the necessary funds, you will be able to regain possession of your home. If you find yourself in this situation, contact a foreclosure law attorney in your state to find the applicable laws.
While buying a foreclosure can present some challenges, it also opens up a wealth of opportunities. Get access to foreclosure addresses, auction dates and locations, loan history and more with our foreclosure property search.