How Foreclosures Work and Steps You Can Take To Avoid Foreclosure
By Jeff Spellman
Purchasing a home is a huge step in any person's life and it
requires a great deal of commitment from the buyer. When you stop
to consider that you are going to be repaying the mortgage on
your home for many years to come, it is easy to see what a huge
commitment buying a home really is.
Unfortunately, many people get overwhelmed with financial
difficulties and get behind in making those mortgage payments.
Some people struggle with paying their mortgage because of
unforeseen medical expenses, the loss of a job, and getting in
over their head with credit card debt. No matter what the reason
is that they find themselves in financial distress, it is
critical that they attempt to keep their home, their largest
financial investment, from being foreclosed.
The Legal Definition of Foreclosure
In simple terms, a foreclosure is when the lender attempts to
obtain possession of a property that the lender had loaned money
to the borrower to purchase. A lender provides you with a
mortgage and the home is considered to be collateral until you
pay off the mortgage in full and with interest. If you stop
making payments on your mortgage, the lender has the legal right
to foreclose and take possession of your home in order to recoup
the money that they originally loaned you. Any equity that you
have built up over the years by making payments will be lost,
since you will no longer have legal possession of the house.
The foreclosure allows the lender to declare the entire amount of
the debt on the property to be due immediately. Failure to pay
off the debt in full will result in the lender being able to take
legal possession of the house or property. The lender is then
able to sell the property, to pay for any remaining debt that
is owed to the lender.
The foreclosure process varies from state to state. You will need
to check out the specific foreclosure laws in your particular
state to understand the exact process that is followed in your
state. The most common processes are court proceedings and grants
of power to the lender to sell the property.
Be Aware Of The Fine Print In Your Mortgage Papers
Most lenders will have an acceleration clause in the loan
paperwork that says if you miss a number of payments over a
period of time that the lender may implement this clause. The
acceleration clause simply says that the lender has the right to
foreclose on the property if the payments are not made in a
timely manner. Many states regulate acceleration clauses and
allow late payments to avoid foreclosure. In some instances, the
acceleration clause will stipulate that you are not only
responsible for the principal, but also the total interest
financed when a foreclosure is implemented.
A Bird In The Hand...
Lenders, like people, come in many forms and can be quite
understanding at times or rather demanding at other times. Your
particular lender, and their policies, can dictate how quick they
are to act on a foreclosure and how willing they are to work with
you to resolve your financial issues without implementing a
Ultimately, most lenders would rather have the cash than having
to deal with the process of foreclosing on a house and then
selling it. If bankers wanted to be real estate salesmen they
would have went into real estate instead. For the lender, the old
saying, "a bird in the hand is better than two in the bush" is
very pertinent to the question of foreclosure. You are already in
the home, and it would be far easier to get you to pay for the
home than it would be to put it up on the market. Sure, the bank
could profit handsomely by absorbing your equity, but they could
potentially lose big if the house were to sit on the market
unsold for many years.
It is often recommended that you work with your lender if you are
experiencing financial problems and are unable to make your
mortgage payments. Lenders frequently have to deal with people
who simply ignore the warning letters that they receive, instead
of contacting the lender to try to work something out with them.
By contacting your lender at the first sign of distress, you have
shown more concern and resolve than most borrowers who find
themselves experiencing financial problems.
Have The Courage To Act Instead of React
These words of Oliver Wendell Holmes are as valid today as when
Holmes uttered them in the 19th century. Most people react
passively to foreclosure proceedings, allowing the sky to fall
around them. Yet, had they the courage and conviction to take
positive action, they could have avoided the loss of their home
and the years of bad credit that comes with a home foreclosure.
It is imperative that you review all of the clauses in your
mortgage paperwork, so that you are fully educated on the
circumstances that could lead to foreclosure with your particular
lender. Again, it is also important for you to know what your
state's law is regarding foreclosures. If you need help
understanding all of the legalese associated with financial
documents, loans, contracts and foreclosures, you might consider
hiring a professional to help you through the difficulties of the
Losing your home to a foreclosure could be devastating in many
ways. Not only do you lose your home, but also you lose all of
the equity that you have acquired during the years that you have
been paying on your home. This equity that you have obtained is
often considered a financial asset, and as a financial asset, it
will help to ensure your ability to recover financially once you
have gotten through this difficult time in your life.
Additionally, you will want to avoid foreclosure, because your
credit rating will be dramatically impacted in a negative way as
a result of a foreclosure.
Whatever financial difficulties you might be facing right now are
likely short-term in nature, but a home foreclosure could haunt
your credit for seven years. If you go so far as filing for
bankruptcy, your credit will be harmed for a period of ten years.
Keep in mind --- and this is very important --- at the end of the
seven-year and ten-year windows, it is your individual
responsibility to contact the credit reporting bureaus, to have
them delete the foreclosure and bankruptcy records from your
credit report. These stains on your credit record will not drop
off automatically at the end of the recommended time period.
Given the importance of protecting your financial assets and your
credit rating, you need to take whatever steps are necessary to
help you avoid letting these difficult months that you are facing
now tarnish your financial reputation for many years to come.
Despite the pressures you might feel right now in your financial
situation, this IS NOT a time to be cutting corners, by trying to
navigate these difficult waters on your own. People, who in the
past have hired a professional financial-services specialist to
help them through this difficult process, generally consider that
expense to be some of the best money they ever spent.
There is still hope for getting through this difficult situation,
so long as you do not choose to give up all hope.
There are numerous aspects of residential real estate
that go far beyond the obvious. JS Real Estate Solutions
(http://www.jsrealestatesolutions.com) was established by Jeff
Spellman, a financial-services specialist, to help investors
and homeowners enhance their investments, protect their assets
and maximize their returns. If you are a home owner, and you
are trying to stop a foreclosure in New York State, please
Please visit http://www.jsrealestatesolutions.com
more about all of Jeff's programs, or give him a call at:
516-808-4105. Jeff can also be reached by E-mail at: