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Foreclosure is not something any homeowner wants to face, but unfortunately, sometimes their financial circumstances change, and they end up facing it. If you suddenly get laid off, have a medical emergency, or end up in a situation that puts a major strain on your finances, and find yourself unable to pay your mortgage for an extended period of time, the bank may begin the foreclosure process. In most cases, the lender waits until three payments have been missed before they put the loan into default.

Foreclosure is the process of the mortgage lender reclaiming the title of the property from the owner when they have become unable, or sometimes unwilling, to continue making their mortgage payments. The owner is expected to vacate the property, and the house is usually resold at an auction.

When Does the Process Start?

Once the homeowner has stopped making payments, their loan is delinquent and goes into default. It is usually in default for about 90 days, during which time the lender will attempt to contact the borrower to get them to pay the loan. If the borrower is able to pay the owed balance at that time, they get to keep the house and resume making their mortgage payments. If the borrower has not paid within that time, the lender can then file a Notice of Foreclosure.

There are usually two different ways the Notice is filed, depending on the state. Some states allow lenders to foreclose on a property without going to court, which is called a non-judicial foreclosure; if they file through court it is a judicial foreclosure.

This stage of the process can take between 120 days and nine months.

Avoiding Foreclosure

The foreclosure process takes a long time, so it is rare for a lender to begin the process just because you missed a single payment; most lenders give you a grace period.

In many states, the lender cannot file a notice of default until at least 30 days have passed since the lender contacted the owner about their financial situation and have discussed options to help the borrower avoid foreclosure.

If you find yourself having trouble with your mortgage payments, the best thing you can do is contact your lender and discuss your options. Often lenders will offer a payment plan of some sort to help the borrower keep their home. This is much more beneficial to the lender than the long, drawn-out process of foreclosure.

Sometimes, if the home is nearing the point of foreclosure, the borrower can sell the home. This not only avoids foreclosure, but it also helps protect your credit score.

What Can This do to my Debit and Credit Score?

When the house is eventually auctioned off, 38 states will allow the lender to use a deficiency judgment, meaning the borrower has to pay the difference between what was still owed on the mortgage and how much the property sold for at auction. This can cause financial strain on the borrower, especially if the debt was part of the reason they stopped being able to pay their mortgage.

Foreclosure can have a serious impact on your credit score. When a person’s home is foreclosed, their credit score can drop between 85 and 160 points. The exact amount varies from person to person.