Real Estate Agent and Trainer, Robert Rico, explains what foreclosure is and goes into depth about what this truly means for the real estate business and buyer/seller. Do you want to see more video blogs? Subscribe here!

     

WHAT IS A FORECLOSURE?

Foreclosure happens when the property owner fails to make their mortgage payments to the lender and defaults on the terms of the mortgage loan. The lender then repossesses the property and tries to sell it in hopes of retrieving the amount of money that was owed by the borrower.

THE PROCESS OF FORECLOSURE IN CALIFORNIA

When a homeowner/borrower has not made a mortgage payment after 90 days, which would typically be 3 mortgage payments, the owner will receive a “Notice of Default” from the lender. This legal notice will be placed on the front door of the subject property. This is the first step of the foreclosure process. The property owner then typically has an additional 90 days, making it a total of 180 days without payment, when their property will then be presented with a N.O.T (Notice of Trustee’s Sale) by the lender. The N.O.T informs the borrower that the home will be sold at auction in 21 days for non payment and instructions on the promissory note.

WHY DO PROPERTY OWNERS GO INTO FORECLOSURE?

No one wants to be evicted from their own home, but different situations can make it hard to make monthly payments. A variety of reasons, such as unemployment, divorce, death or medical reasons, for example, can lower people’s income stream and make it difficult to pay loans. If the borrower who is affected manages to recover financially and has the ability to pay the overdue mortgage amount prior to the N.O.T, which may include late fees, they may be able to make their loan current . As a reminder, one 30-day late mortgage payment can drop the FICO credit score between 50 to 100 points.

It’s important for the owner to talk to his/her lender as soon as possible to try and work out any options to avoid foreclosure.

WHAT ARE THE CONSEQUENCES OF A FORECLOSURE?

The financial consequences of going through a foreclosure can be miserable. Not only is the property retrieved by the lender, but any equity you may have established is also lost. However, the misery doesn’t end there. You still need to pay taxes on the amount of mortgage. Anytime debt is forgiven, it will be considered income by the IRS.

Foreclosure damages your credit and can remain on your credit report for up to 7 years, which can hurt your chances of qualifying for a new home loan. It may also create difficulty in qualifying to rent a home.

It can be tough to rebound from a foreclosure, but with patience and diligence people affected by a foreclosure can slowly see their credit recover and expect to purchase a home once again in the future.

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