Welcome to FindLaw's Foreclosure section. Here you will find information and resources to help you get a handle on mortgage payments, avoid foreclosure, get better prepared for the foreclosure process. This section also provides key information on foreclosure alternatives and tips to help you avoid or stop foreclosure through credit counseling, mortgage modification, bankruptcy, and other strategies. Foreclosure is a difficult process to undergo, not least of which is the loss of one's home, but much more tolerable when armed with the right information.
Foreclosure at a Glance
When your lender forecloses on your home, it means you have defaulted on your mortgage -- typically after missing several payments -- and must give up your property. Your lender will make efforts to contact you via mail or telephone with warnings that foreclosure is imminent, usually with certain deadlines. Individuals who lose their homes through foreclosure will see a decline in their credit score, so they often must rebuild their credit before reentering the housing market again.
If your home is worth less than the amount remaining on your mortgage, you may be hit with a deficiency judgment. If this happens, you will have to pay the bank the difference. Otherwise, the bank will use the proceeds from selling your home in order to pay down the remaining loan balance.
Keep in mind that state laws and regulations affect the manner in which foreclosures are executed, mostly intended to prevent fraud and protect the parties involved. For example, Illinois law requires the court to provide notice to leave a house at least 30 days in advance (after it is sold).
Types of Foreclosure
There are two main types of foreclosure initiated in the U.S., although a handful of states employs a few other methods. The two primary types are:
- Foreclosure by judicial sale - This is the required method of foreclosure in many states; the property is sold under the court's supervision, with proceeds paying off the mortgage lender and any lien holders.
- Foreclosure by power of sale - Most states allow this type of foreclosure; it involves sale of the property by the mortgage holder, without supervision of the court.
The older process known as "strict" foreclosure is now only available in New Hampshire and Vermont. In a strict foreclosure, a court orders the mortagor (the homeowner) to pay off the mortgage within a certain period of time. If the mortgagor is unable to do so, the lender gains automatic title to the property.
Virtually all homeowners would rather avoid foreclosure altogether, but some struggling mortgagers may be relieved to get out from under their mortgage. Obviously, the best tip for avoiding foreclosure is to pay your monthly mortgage each month. But even homeowners who are unable to make their payments on a regular basis (or in full) can sometimes work out a plan to keep their homes.
One important thing to remember is that lenders generally would rather not take on the responsibility of your house, preferring monthly payments on the loan. Therefore, many lenders are willing to modify the loan, temporarily lower or suspend monthly payments in a process called "forebearance," come up with a repayment plan, or refinance. Other options include seeking government assistance, filing for bankruptcy, or simply selling the home yourself in order to avoid foreclosure and its stigma on your credit report.
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