No one is exempted from the risk of foreclosure. Unexpected events – the sudden loss of job, a sickness or death in the family, divorce – are all serious situations that can cause foreclosure. More than this, ineffective handling of finances or uncontrolled spending can also lead to foreclosure.

Taking a Look at Your Mortgage

What kind of mortgage do your currently have? Is it a loan with an adjustable interest rate? If so, then the rate on your loan might be higher now that you when you first started with it. The National Association of Mortgage Banker’s (NAMB) has reported that in the past years, those who are in the third to fifth year of their mortgage loans were faced with foreclosure. In addition, the Federal Reserve Board’s records show that interest rates on mortgage loans undergo a 3% or more increase during its term. The weight of these facts should not be taken lightly. If you have a mortgage loan, it’s time to keep check on your payments.

However, what if the unexpected event happens? What if you get laid off from work? Generally, lenders will issue a Notice of Default if you miss at least three of your mortgage payments. The length of time left before the actual foreclosure on your home depends on your lender. It can take weeks or even months. Nevertheless, once you received a Notice of Default from your bank, it means you only have a limited time before the bank gains repossession of your property.

Notice of Foreclosure

It is important to remember that a notice of foreclosure does not put a stop to your other fees. As long as you fail to pay off your debts, your mortgage as well as late fees on your mortgage are still incurred in your account and reflected in your credit report. Be aware too, that after your property has been auctioned, if the purchase price is not enough to cover your existing debts, you will still be accountable to pay back what is left of your debts. Thus, if your debts amount to $125,000 and you only made a sale of $100,000, you still need to pay back the $25,000 to your lender. If you cannot pay it bank, your lender can take one your assets or write off this debts from their taxes. The IRS will in turn, add this amount to your own taxes.

Other Problems of Foreclosure

Clearly, losing your home to foreclosure does not only mean you’ve lost your property but also presents other problems. First of all, you lose equity or the actual value of your home. In many cases, home owners are left no choice but to sell their home at a much lower price than the market value. It also leaves a derogatory mark on your credit history for at least seven years. This means, you will be seen as high risk borrower by lenders and you lose the privilege of an easy approval or being entitled to better rates. Furthermore, foreclosure can have a very negative effect on your emotional well-being.

Avoid Foreclosure

The best way to avoid foreclosure is to ensure that you’re keeping up with your payments. If you’re lender allows you to pay in advance and if your financial state allows you to do so, then by all means try to pay off what you can from your mortgage. Remember that the sooner you finish your term, the safer you’ll be from the possibility of foreclosure.

If in case, you are experiencing financial difficulty and missed your monthly payment, do not wait for your lender to send you a Notice of foreclosure. Instead, have the initiative to speak with your lender and let them know about your current situation right away. You’ll have better chances of reaching a negotiation with your lender for easier payment terms on your mortgage if you address the matter immediately. It also gives you more time to do something about your situation even before a foreclosure is filed against you.