Understanding the Foreclosure Process

A reader asks:

What actually happens in a foreclosure?

After about three months of missed payments, the foreclosure department will send a notice of default, asking that you pay up by a deadline. If you miss that deadline, the loan will be sent to a local attorney to begin foreclosure proceedings. All this time, late fees and legal fees are accruing. The impending foreclosure must be advertised and will eventually result in a public auction of the property. Most states allow you to save your home by negotiating a loan modification throughout the process. However, if you haven't paid and are still in your home at the time of the auction, the Sheriff's Department may have to remove you from your home.

What It Means to You

The foreclosure process will cause stress and strain and can last up to a year. In addition, your credit score will be negatively affected, and the foreclosure remains on your credit report for 7-10 years. You will not be eligible to buy another home for five years. The IRS considers a foreclosure as a home sale, so you may need to report any gain or loss.

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