A foreclosure will effect your life and finances for a long while to come. Specifically, a foreclosure remains as a huge black mark on your credit reports for years. That, among other reasons, is why you should avoid a foreclosure, which is possible by negotiating with your mortgage lender.
You can still possibly prevent foreclosure if you are willing to be up front with your bank and let them know exactly where you stand financially when it looks like you’re going to default, or start missing payments. Loan modification is also a tool to help you recover from a close call, and involves adjusting the terms of your loan, such as interest rates and monthly payments, or could even mean adding missed payments to the tail of the mortgage.
If loan modification doesn’t work, you may consider a short sale. This is when a bank agrees to sell a house quickly for less than its market value. It can prevent foreclosure, but its probably better for the bank than it is to you because the short sale mitigates the bank’s loss, but wreaks havoc on your credit reports. It acts very similarly to a foreclosure in terms of reducing your FICO score, though a short sale will mean that you could be able to buy a home again much sooner.
If you do nothing and take no effort to work with your bank, then don’t be surprised when they begin foreclosure proceedings. Here is what will happen:
The bank sends out a Notice of Default after the first missed payment.
Shortly after this (at 60 days post missed payment), the lender will contact you to encourage any payment amount to help keep you current on your loan.
If you make no payments after 90 days, then the bank will commence unstoppable foreclosure proceedings.
The property is then sold at a foreclosure auction. After the sale you have two options: Either leave at your own free will or wait for the Sheriff to come and evict you.