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What is a Foreclosure?

By Garry Crystal
Updated May 16, 2024
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If you have bought a home using a home loan, your lender will have taken a security interest in the property. If you find that you cannot keep up with mortgage repayments on your home, the security interest gives the lender the right to proceed with a foreclosure. This can involve auctioning off your house and using the proceeds to recover their investment.

If your property is not sold or the purchase is not enough to cover the lender’s loan, a deficiency judgment could be pursued against you. A foreclosure and a deficiency judgment will seriously hinder your prospects to obtain real estate in the future. A foreclosure is a worrisome prospect for anyone, but there are options you can pursue in order to avoid it.

The first thing you need to do is to decide whether it will actually help your financial problems to allow the foreclosure to happen. If your problems are of a temporary nature, such as a sudden job loss, then it may be only a matter of time before you are again financially viable. On the other hand, your debt problems may be so great that foreclosure would be the best way to erase them.

Credit counselors can give professional advice and help with debt problems. They can negotiate with lenders to lower interest and repayments to enable you to avoid foreclosure. They will help assess your financial and debt situation and create a plan to help you with credit and debt problems now and in the future.

Another option is to contact your lender directly. Lenders make money by collecting your principal and interest payments. It is not in their best interest to proceed with a foreclosure. If you are in temporary financial difficulty and can create a plan that is to the benefit of you and the lender, then the lender may be sympathetic.

Contact the lender's Loss Mitigation Department and inquire about lowering payments for a few months until you are financially viable again. You may even be able to suspend payments for a few months. If you come to an agreement, make sure that you receive written details regarding the suspension or reduced payment plan.

A further option may be to renegotiate your current loan. You may have bought your house when interest rates were high and your repayments may reflect this. You can try to refinance your loan at a lower interest rate in order to solve your cash flow problems. Obtain quotes from different lenders in order to receive the best interest rate on refinancing.

A final option to avoid foreclosure is to simply sell your house yourself. Your debts may have become too large to handle, and selling your house may eliminate them and stop a bad credit record due to foreclosure. You may not get your ideal price if you are trying for a quick sale, but it is a more financially sound option than foreclosure.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By azmover — On Oct 20, 2010

i have two homes that are going through foreclosure. can the banks go after my other home that is paid off?

By sara10101 — On Oct 31, 2009

Thanks for publish my comment ...


foreclosure auctions

By nobreather — On Jun 23, 2009

the housing crisis in the united states is unbelieveable in some places. in northern nevada (one of the epicenters of overbuilding), there are a few zipcodes where 1 in 50 homes are currently in foreclosure!

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