Foreclosure can be a scary word. But it isn’t necessarily the end of the world.

First of all, don’t think that the lender wants to foreclose. It’s actually a messy and expensive process for both sides, and typically, the lender will want to try to avoid foreclosing on a home. But, foreclosures do happen, and here are some possible scenarios for what happens after you receive a notice of foreclosure.

The best possible and  happiest scenario is that you pay the mortgage and get to keep the home. The lender is satisfied once you pay the note, and the foreclosure is null and void. Typically, this can either happen where the homeowner is able to raise enough cash to pay or the homeowner refinances.

Homeowners have been able to raise cash by selling other assets, like a vehicle. If you do refinance, you want to do it with another bank or mortgage loan at a reasonable rate. Avoid replacing a mortgage debt with a high interest debt you will also end up struggling to repay.

If you find yourself without any assets to sell, or unable to refinance, you can always sell the home to pay off the mortgage debt. But this can be a temporary solution. If you pay off the loan with the proceeds from the sale, make a profit and do not buy a new home soon enough, you could end up being hit with a capital gains tax liability.

However, there are some exceptions. If you have lived in the home for the past three of the previous five years, are a married couple or active duty military, there are certain other rules that apply.

In some circumstances, the bank could auction off your home. Procedures for this process vary state-by-state. As a general rule, however, the highest bidder who has the available funds ends up with the deed to the property. The bank might also take over the property, deciding to bide their time and auction or sell it at a later date. If this happens, you will likely undergo eviction proceedings. In certain circumstances, you might be able to arrange a deal to stay on in the property as a renter, however.

If you file bankruptcy, you can bring foreclosure proceedings to a halt. It does not eliminate a foreclosure, but it can buy you time to save up money to pay off the mortgage, or at least get current.

Foreclosure and bankruptcy can stay on your credit report for anywhere between 7 – 10 years.

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This is filed under Foreclosures.

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