Bank Foreclosure 101
No one ever purchases a home with the intention of defaulting on the loan, but it does happen. Many situations can result in a bank foreclosure on a property, including medical emergencies, loss of a job or divorce. If you are in a position where your mortgage payments cannot be met, it is important to contact your lending institution right away to see what can be done about avoiding a bank foreclosure. The best way to get a handle on the situation is to understand exactly how the foreclosure process works and what you can do to stop it.
Three Strikes and You're Out
When you sign the papers with a mortgage company to purchase a home, you are promising to make regular payments to pay back the principle amount borrowed plus interest at a rate that you and the lender have agreed upon. If you neglect to make three consecutive payments, your mortgage company has the legal right to "call" the loan. This means that the lender can require you to pay the full remaining balance of the loan at that point. Of course, most people will not be able to come up with that kind of money, and that is when bank foreclosure procedures will begin.
You can do yourself a big favor by communicating with your lender about any temporary financial difficulty you find yourself in before you actually miss a payment. If a lender knows the situation, he will be much more likely to work with you in making up the payments with a variety of financing options. Why? The simple reason that lenders do not like to deal with bank foreclosures any more than borrowers do. A bank foreclosure will end up costing the mortgage company much more money than working out an alternative payment plan with the current borrower. Banks are in the business of loaning money not buying and selling property. They won't do it unless they have to.
The End Result
In many cases, working with your lender is all that is needed to avoid a bank foreclosure. You may work out an alternative payment plan, or the mortgage company may offer assistance in selling your property quickly to get both of you out of trouble. If a bank foreclosure does proceed, your home will most likely go on the auction block to be sold to another home owner or investor "as is". A foreclosure will go on your credit report for many years, making it difficult to buy another home or take out a loan for a car. If you find yourself unable to make your mortgage payment for whatever reason, contact your mortgage company right away. It is your best chance of avoiding a bank foreclosure and keeping your home.
