What is foreclosure? If you are a homeowner currently in default on a loan secured by your home, your lender might choose to foreclose against your home, which is a remedy available to them. It means that they start the process of providing notice to the public that your home will be sold at auction to the highest bidder. The proceeds from this sale would go to pay off the indebtedness secured by your home.
Who usually is the highest bidder? It is usually the Lender unless there is significant equity in the Property. They just bid their loan amount, plus default interest and other costs of the sale.
What happens then? The Lender then has the trustee deed the property to them. With all of the foreclosure documentation in place, the Lender has a local title company insure the title in the Lender. The Lender then can sell the Property to pay-off the loan and pursue other legal remedies against you for any amounts still owed after applying the sale proceeds.
Does foreclosure damage my credit? Yes.
What can I do as a foreclosure victim? There are several options available to you.
- Stay for Free. One benefit is that you can live in the home without making loan payments for up to 9 months or even 18 months. Foreclosure usually does not start until you have missed 3 monthly payments and it takes 6 months to complete the foreclosure process in Washington. That time can double if you file for personal bankruptcy. The bankruptcy damages your credit for 10 years, but you can keep non-defaulted credit cards and other leveraged assets if you chose to keep the loan current on these assets.
- Negotiate a Short Sale. You can go to your Lender and negotiate a “short sale.” If the fair market value of your home is less than the loan amount, you can ask your Lender to take less. They will take the property immediately and the loan is deemed to be “satisfied.” This does, however harm your credit rating.
- Apply for an FHA loan. This can give you from 3 to 12 months of a break on your payments, with the payments tacked onto the end of the FHA loan.
- Ask for a Break. You can go to your Lender and ask for reduced monthly payments. Ask for either a downward adjustment in the note rate or an increase in the amortization term. If you have been a good paying customer for some time, they may be willing to do this to keep you as a good paying customer.
- Offer a Deed in Lieu of Foreclosure. This is a quick swap with your Lender. Your Lender forgives your Loan in exchange for title to your home. This also harms your credit rating.
- Rent out your home. Use the rent to make the loan payments. You then can move to a smaller, more economical place.