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Understanding Risk Factors for Foreclosure


by: Woodrow Aames
01 Dec 2010

Losing your home is a frightening prospect. Yet many Americans don't understand the risks leading to foreclosure. They know about the outcomes: bankruptcy, destroyed credit ratings, heavy debt burdens, and federal taxes on personal income. Understanding foreclosure risk factors can help you avoid those outcomes.

First, let's look at some common warning signs that are precursors to foreclosure:

  • Inability to make house payments on time each month
  • Ever-rising, unpaid credit card debt eating up your income
  • Low FICO scores leading to your sub-prime loan or a looming balloon payment
  • Risk of unemployment
  • Plunging home values in your area

While thinking about foreclosure may be upsetting, acting early might help you save your house.

The Timeline of a Foreclosure

If you've fallen behind on your bills, you may think you still have time to get your finances in order before losing your home. However, once you miss a payment, foreclosure proceedings can happen quicker than you might think. Even if you're not behind on your mortgage, it might be wise to consult with a housing counselor. The Department of Housing and Urban Development maintains a listing of public agencies by state that offer advices on foreclosures, defaults, and credit issues.

For example, the first month you miss a mortgage payment, you'll definitely hear from your lender by letter or phone. With a second consecutive missed monthly payment, you'll be notified by your lender. It's vital to speak with their representative about making at least a payment now in hopes of avoiding more trouble. By the third missed monthly payment, you can expect a notice from the lender with a 30-day warning (called a Demand or Notice to Accelerate letter) before they may begin foreclosure actions.

When the fourth consecutive month passes and you haven't made a payment, you may be notified by the lender's attorney. You'll now be charged attorney fees as your lender pursues foreclosure. A Sheriff's or Public Trustee's sale may be scheduled at this time by the attorney. The notice may appear in the local paper, arrive by mail, and be taped to your door.

After the foreclosure sale, you'll enter a redemption period during which you can save your home by paying off the outstanding balance and legal costs. While you may ultimately be able to stay in your home, you'll have extra fees and legal costs to contend with. Being aware of risk factors and seeking counseling if you start to fall behind can help you avoid foreclosure.

Sources:
Are You at Risk of Foreclosure and Losing Your Home? • http://portal.hud.gov/http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure/fctimeline • U.S. Department of Housing and Urban DevelopmentAre You at Risk of Foreclosure? • http://www.safehavenfunding.comhttp://www.safehavenfunding.com/foreclosure_information%5Cforeclosure_risks.html • Safe Haven FundingHUD Approved Housing Counseling Agencies • http://www.hud.gov/http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm • U.S. Department of Housing and Urban Development