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Understanding Foreclosure


What You'll Learn

  • Talk to your lender as soon as possible about your options to avoid foreclosure. Help is available.
  • The timeline for the foreclosure process differs from state to state, varying from as little as several months to over a year
  • The impacts of foreclosure can be devastating. Don’t give up on finding an alternative.

It's important that you understand what foreclosure means and why it's so important to get help early to avoid it.  There are many options to keep your home and leave your home gracefully. Talk with your lender about your situation and options that may be available to you as soon as possible and don't give up.



Nonprofit housing and credit counseling agencies are good resources for help. They can work with you to organize a budget and explore helpful options.

Foreclosure is a legal process where your lender attempts to recover the mortgage balance owed on your delinquent loan by selling the home.  The foreclosure process is different in every state.  In some states, a foreclosure can take as little several months.  In other states, it's a process that can take more than a year.  In either case, the results can be devastating, including:

  • Financial implications. You may be held responsible for the entire balance owed on the home.
  • Loss of your home's equity.  If you have equity in your home or your home has increased in value since you purchased it, a foreclosure could mean the loss of thousands of dollars in equity.
  • Damage to your credit.  Your credit score will take a big hit with a foreclosure on your credit history.  This will impact your borrowing ability, and in most cases, you will not be able to purchase a home again for several years.
  • Increase in interest rates.  The interest rates on your credit cards could increase as your credit card companies may view you as an increased risk.
  • Potential tax implications.  You could be responsible for taxes on the amount of mortgage that the lender was not able to recover from the sale of the property.
The most important thing you can do is to take action now.  Call your lender and ask for help at the first sign of trouble.

When Facing a Foreclosure

Facing a foreclosure is scary, but there are things you should and shouldn't do if you are in this situation.

What to Do What Not to Do
Keep all communication lines open.  Read all correspondence and answer all calls from your lender.  They want to help you. Move out of your home.  To qualify for assistance, you are usually required to be living in the home. 
Realistically assess your situation.  If your situation is short-term, your lender may be able to offer a forbearance or repayment plan. Ignore the problem.  It may be possible to keep your home or exit gracefully without the impacts of a foreclosure, but you need to reach out for help as soon as you realize there is a problem.
Consider your options.  If you’re not in a position to keep your home, consider selling it before facing a foreclosure.  If you’ve already missed a payment, call your lender as soon as possible and ask about alternatives to foreclosure. Fall victim to a fraudulent scheme.  Unfortunately, scam artists want to profit by your misfortune and may offer to help for a fee. If it doesn’t sound right, it probably isn’t.
Be aware of your financial responsibilities.  Even if your lender sells your home, you may still be responsible for the difference in the sale price and what you owe, as well as taxes.  

Key Take Aways

  1. Be sure to keep an open line of communication with your lender. Shutting them out will cause more harm than good

  2. Beware of anyone who promises you mortgage help for a fee

  3. If you lose your home to foreclosure, it will have a significant negative impact on your credit score and affect your ability to get credit in the future

You May Also Be Interested In


Understanding Foreclosure Warning Signs

Learn how recognize financial problems that can be warning signs of foreclosure and who to contact for help.


Getting Back on Track After Foreclosure

Learn how to pick up the financial pieces after you’ve lost your home to foreclosure.

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