- \n
- What is foreclosure?<\/a><\/li>\n
- Why homeowners go into foreclosure<\/a><\/li>\n
- How do foreclosures work?<\/a><\/li>\n
- Buying a foreclosed property<\/a><\/li>\n<\/ul>\n
<\/a><\/p>\n
What is foreclosure?<\/h2>\n
A foreclosure is the repossession of a home by a lender after a homeowner defaults on their mortgage<\/a>. The exact process varies by state, but in the most common scenario, the lender attempts to sell the repossessed home at auction.<\/p>\n
If it doesn\u2019t sell, the lender retains ownership \u2014 at this point, the home is considered real estate owned (REO).<\/p>\n
An REO is then listed for sale by a local real estate agent hired by the lender. The agent will market the home and represent the lender in the eventual sales transaction.
\n<\/a><\/p>\nWhy homeowners go into foreclosure<\/h2>\n
You may go into foreclosure for any number of reasons. Whatever the reason might be, it\u2019s likely impacting you financially and causing you to fall behind on mortgage payments<\/a>.<\/p>\n
Here are a few common situations that lead to foreclosure, as well as some tips for avoiding them:<\/p>\n
![\"\"](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2021\/04\/common-ways-to-fall-into-foreclosure-infographic.png\")
<\/p>\nIncreased mortgage payment<\/h3>\n
Adjustable-rate mortgages<\/a> (ARMs) typically have lower starting rates, which keeps the monthly payment low in the early years of the loan and makes it an attractive option for buyers.<\/p>\n
But at some point \u2014 after five or seven years, for example \u2014 the loan adjusts. If interest rates have increased since the loan was originated, so will the payments.<\/p>\n
And when that happens, you might find yourself struggling under the weight of the new, higher payment.<\/p>\n
How to avoid it:<\/b> If you have an ARM and are close to the end of that initial fixed period, consider refinancing into a fixed-rate loan. Fixed-rate loan payments never change, and because these loans are fully amortizing, you\u2019ll have fully repaid your debt by the end of the loan term.<\/div><\/div>\nIf you\u2019re looking to refinance your adjustable-rate mortgage into a fixed-rate conventional loan, Credible has you covered. With Credible, you can see prequalified rates from all of our partner lenders in as little as three minutes.<\/p>\n
Find out if refinancing is right for you<\/strong><\/span><\/p>\n- \n
- Actual rates from multiple lenders<\/strong> – In 3 minutes, get actual prequalified rates without impacting your credit score.<\/li>\n
- Smart technology<\/strong> – We streamline the questions you need to answer and automate the document upload process.<\/li>\n
- End-to-end experience<\/strong> – Complete the entire origination process from rate comparison up to closing, all on Credible.<\/li>\n<\/ul>\n
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Trustpilot<\/a><\/div>\n<\/p>\n<\/div><\/div>\n
Unemployment<\/h3>\n
Losing your job can have devastating consequences on your finances. Under normal circumstances, unemployment benefits often cover only a fraction of an individual\u2019s usual earnings. If that\u2019s enough to cover your mortgage payments, you might fall into foreclosure.<\/p>\n
How to avoid it:<\/b> The specific options available to you depend on the type of loan you have. But, generally speaking, a loan modification<\/a> can change your loan\u2019s term and\/or interest rate to make it more affordable. However, not everyone is eligible for a loan modification.<\/p>\nMortgage forbearance<\/a>, which temporarily pauses your payments, might also be possible.<\/div><\/div>\n
Illness or injury<\/h3>\n
Homeowners suffering from illness or injury face a double whammy \u2014 diminished earnings from not being able to work plus expensive medical bills that can result in missed mortgage payments.<\/p>\n
How to avoid it:<\/b> First, investigate disability benefits offered through your employer. If you\u2019re not covered, or aren\u2019t sufficiently covered, you can also get individual disability insurance through another insurance provider, but it will likely be more expensive.<\/p>\nOnce you\u2019ve squared away your disability benefits, contact your lender about modifying your mortgage.<\/div><\/div>\n
Divorce<\/h3>\n
Divorcing couples can find themselves in financial straits simply by virtue of carving two separate households out of one. When there\u2019s a marital home to contend with, things can turn complicated very quickly. Inaction could land you in foreclosure.<\/p>\n
How to avoid it:<\/b> You\u2019ll have to agree on which of you will keep the home, and that person will have to assume the mortgage or refinance the home<\/a> to get a mortgage in their own name.<\/p>\nIf neither of you can afford the payments on your own, the best option might be to sell the house before you fall behind on payments, or rent it out \u2014 whether on your own or through a property management company \u2014 and let the rental income cover the expenses.<\/div><\/div>\n
Credit card debt<\/h3>\n
Paying 18% or more in interest on credit card debt can lead to financial ruin and the eventual loss of your home if you can\u2019t make payments on time. Signs you\u2019re headed for trouble include maxing out your credit limit and making only the minimum required payments.<\/p>\n
How to avoid it:<\/b> Consolidating your credit card debt can reduce your interest rate and your payment, and leave you with just one bill to pay each month.<\/p>\nYou can do this by transferring balances to a single card with a low rate, taking out a lower-rate consolidation loan, or using a home equity loan to pay off the expensive debt.<\/div><\/div>\n<\/a><\/p>\n
How do foreclosures work?<\/h2>\n
Foreclosure laws vary by state and can take one of two forms: judicial foreclosure or non-judicial foreclosure. A judicial foreclosure involves the court system, while a non-judicial foreclosure takes place out of court.<\/p>\n
1. The homeowner misses mortgage payments<\/h3>\n
A missed payment is one that\u2019s 30 days past due. A loan is generally considered to be in default after the third missed payment.<\/p>\n
2. The lender issues a notice of default<\/h3>\n
In most cases, a lender will issue a notice of default after you\u2019re more than four months (120 days) past due. This is your opportunity to bring the loan current or request a modification to allow you to remain in the home.<\/p>\n
Modification options include:<\/p>\n
- \n
- Extending the term of the loan or reducing the interest rate to lower the payments<\/li>\n
- Forgiving a portion of the loan principal<\/li>\n
- Adding the past-due payments and fees to the loan balance<\/li>\n<\/ul>\n
3. The home enters pre-foreclosure<\/h3>\n
If you and your lender can\u2019t work toward a solution to keep you in your home, the home enters pre-foreclosure, and your lender will file a suit asking the court to allow a foreclosure sale.<\/p>\n
Good to know: <\/b>In some states, rather than file suit, a trustee will record a notice with the county recorder of its intent to hold a foreclosure sale as part of a non-judicial foreclosure.<\/div><\/div>\nThe sheriff or process server in the county where the home is located will then serve you with the complaint and a summons. You\u2019ll have two options at this point:<\/p>\n
- \n
- Fight the foreclosure:<\/b> If you want to fight the foreclosure, you\u2019ll generally have up to 30 days to answer the complaint.<\/li>\n
- Don\u2019t fight the foreclosure:<\/b> If you don\u2019t want to fight the foreclosure, no further action is needed. The judge will rule in the lender\u2019s favor and give permission for the sale.<\/li>\n<\/ul>\n
Fighting the foreclosure delays it but doesn\u2019t stop it unless the judge rules in the borrower\u2019s favor. Otherwise, the auction sale proceeds. The homeowner can remain in the home until they receive written notice to vacate.<\/p>\n
Tip:<\/b> This stage can take a few months for a non-judicial foreclosure and anywhere from a few months to more than a year for a judicial foreclosure.<\/div><\/div>\n4. The home is put up for auction<\/h3>\n
If the delinquency can\u2019t be resolved, the lender ultimately holds a real estate auction<\/a> to try to recoup its loss.<\/p>\n
In the event the house doesn\u2019t sell at auction, the lender retains possession and lists it for sale as an REO with a real estate agent or broker.
\n<\/a><\/p>\nBuying a foreclosed property<\/h2>\n
Lenders are in the business of financing real estate, not selling it. To get the property off its books and recoup at least some of its loss, a lender might list a foreclosure below market value or accept an offer that\u2019s below market value. This can lead to great deals for buyers.<\/p>\n
But a low price isn\u2019t always a good value. Foreclosed properties are often neglected properties that need work, and they\u2019re sold as-is, which means the lender won\u2019t make repairs.<\/p>\n
Sometimes the issues are just cosmetic. Other times, the homes need so much work that they don\u2019t qualify for financing and so require a cash purchase.<\/p>\n\n
\n\n
\n\t Pros<\/strong><\/td> Cons<\/strong><\/td>\n<\/tr>\n \n\t - Possibility of a good deal<\/li>
- Instant equity if the home is purchased below market value<\/li><\/ul><\/div><\/td>
- Sold as-is<\/li>
- Foreclosed homes are often vacant and neglected for an extended period<\/li><\/ul><\/div><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n
If you\u2019re shopping around for a conventional loan, Credible allows you to compare multiple lenders at once.<\/p>\n
<\/p>\nCredible makes finding a mortgage easy<\/strong><\/span><\/h3>\n
Compare prequalified mortgage rates from top lenders in just 3 minutes.<\/h6>\n
- \n
- Personalized rates, not generic<\/li>\n
- One simple, safe TLS-encrypted form<\/li>\n
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- Checking rates is free, with no commitment<\/li>\n<\/ul>\n
- Don\u2019t fight the foreclosure:<\/b> If you don\u2019t want to fight the foreclosure, no further action is needed. The judge will rule in the lender\u2019s favor and give permission for the sale.<\/li>\n<\/ul>\n
- Fight the foreclosure:<\/b> If you want to fight the foreclosure, you\u2019ll generally have up to 30 days to answer the complaint.<\/li>\n
- Smart technology<\/strong> – We streamline the questions you need to answer and automate the document upload process.<\/li>\n
- Why homeowners go into foreclosure<\/a><\/li>\n