Foreclosure and Short Sales


Deed in Place of Foreclosure

When does foreclosure begin?

Lenders will initiate foreclosure proceedings when home owners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify them in writing that he or she is in default. The lender can request a trustee’s sale or a judicial foreclosure, in which the property is sold at a public auction.

A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property’s sale.

Borrowers should do everything they can to avoid foreclosure. This is one of the most damaging events that can occur in an individual’s credit history. It can also, clearly, be one of the most traumatic events in one’s life.

Can a home seller sell a home for less than its mortgage?

Yes, in some cases you can sell your home for less than what you still owe on the mortgage. This is complicated and depends on the lender. This situation is known as a “short sale.” Sometimes a lender will be willing to split the difference between the sale price and loan amount, which still must be paid.

A short sale may be more complicated if the loan has been sold to the secondary market. This is because then the lender will have to get permission from Freddie Mac and Fannie Mae, the two major secondary-market players. If the loan was a low down payment mortgage with private insurance, then the lender also must involve the mortgage insurance company that insured the loan.

Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an eviction order.

How long are bankruptcies and foreclosures reflected on a credit report?

7 to 10 Years. Some lenders will consider a borrower sooner if they have worked to re-established their good credit. The circumstances of the bankruptcy can also influence a lender. If the borrower went through a bankruptcy due to an employer’s had financial hardship, a lender may be more sympathetic. If a bankruptcy is due to overextended personal credit lines, the lender will be less inclined to work with them.

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