|Although it is preferable to avoid bankruptcy, it is even better to avoid foreclosure. Foreclosure is the legal process whereby property is repossessed and sold at auction to cover the costs of an unpaid debt. This is usually the result of a homeowner defaulting on mortgage or loan repayments. The most common causes of foreclosure are divorce, loss of employment or a death in the family.
Every year, around one million homes across the US are sold as foreclosures by banks and private mortgage institutions. Some government departments can also repossess property to cover the costs of outstanding taxes and other debts.
Large numbers of homes are repossessed and sold on every year by the US Department of Housing and Development (HUD), the Internal Revenue Service (IRS), the Department of Veterans Affairs (VA) and US Customs.
As well as costing people their homes, foreclosure can have a devastating effect on personal credit. People who have lost property as a result of foreclosure will struggle to obtain loans or mortgages and may even fail simple credit-checks for home rental agreements. It is a very bad situation to be in. Most financial advisors advise homeowners to do everything within their power to avoid going into foreclosure.
For those unlucky enough to default on their mortgage repayments, foreclosure can be a drawn out and traumatic affair. Once a loan secured on a property goes into default for more than three months, the lender can start trying to sell the property to recover the outstanding debt. The selling process typically takes 12 to 18 months from the date when the notice of default was filed.
While foreclosure is a financial disaster for some people, for others, it’s a chance to buy cheap property, as foreclosures can provide lucrative investment opportunities for home-buyers and investors. Houses auctioned as a result of foreclosures often sell for well below the market rate and provide bargains for investors. However, full payment is required up front and property is sold ’as is’, with no guarantees or insurance.
The best way to avoid foreclosure is to stay on top of your mortgage and loan repayments, but there are several other steps you can take to protect your home and credit rating.
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