Foreclosure is a legal instrument which is resorted to by most creditors against the debtors in case the later fails to satisfy a financial obligation with the creditor. Foreclosures are generally a result of non payment of debt which may include mortgage payments, second mortgages, equity lines of credit or even non payment of property tax.
Mostly people fall in the trap of foreclosure because of missed monthly mortgage payments. Foreclosure is really an unpleasant experience in one’s life as you may land up losing your house to the lender. Not only will you lose the roof over your head, but also a judgment can be made issued by the lender against you for the amount you owe and other cost of foreclosure. In addition to this, your credit report will reflect this foreclosure and this will stay in the report for seven years adversely affecting your credit score. Foreclosure may result in lowering your credit score to as much as 260 points.
So one must always try and avoid foreclosure at all cost. To avoid this situation, whenever you are in a financial crisis, contact your lender immediately. Since foreclosure is costly to both your and your lender, most lenders agree to foreclosure. However, it should be noted that if you show a good effort to repay back your missed payment to the lender, you can avoid foreclosure. If you ever miss a payment, ask your lender to give you some time to repay the missed payment plus the late fees on a monthly basis. Pay the dues with the monthly installments slowly.
Another alternative to foreclosure is short sale. Depending upon the area you live in and the market price of your house, you can sell the house to get the full or part of the amount needed to repay the entire mortgage payment. However, for short sale, it is essential for your lender to allow you to sell your house and forgive any shortage between the sell price and the balance due. Both short sale and foreclosure have negative impact on your credit report. Short sale lowers your credit score only by 200 points and you can overcome the impact of short sale faster than foreclosure. However, you have to pay the tax on the amount of the loan forgiven.
1 comment:
Hi Lucy that is a very important and happening information you have posted. Foreclosure has increased rapidly after sub-prime market crisis and consequently our economy is passing through a recessionary phase. In turn we, the citizens, are trying hard to get out of debt
Jason
(http://www.debtconsolidationcare.com)
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