When you're in pre-foreclosure, it's important to know what happens when the house goes to foreclosure auction and how that can affect you moving forward.
Understanding the consequences of foreclosure can help you make better informed decisions and also help motivate you to get yourself out of that position, even if it means selling your house quickly.
Let's start with the basics...
What we'll cover:
- What happens after foreclosure?
- You can buy your house back after a foreclosure
- My home was foreclosed, now what?
- Do you still owe money after foreclosure?
- What you can legally take from your foreclosed home
- Can bank garnish wages after foreclosure?
- Who is responsible for property taxes on a foreclosure?
- How bad will a foreclosure hurt my credit?
- Other effects of foreclosure
What happens after foreclosure?
Once the house has gone to the foreclosure auction, one of two things have occurred.
This first is someone has purchased the home at a reduced cost in foreclosure. This is either an individual or a company that shows up at auction to purchase homes for themselves or their portfolio.
They will pay a certain amount, depending on how the bidding went, and then they will assume control of the property.
The second scenario is if no one purchases the property. In many cases, the bank itself will pay for the property so that it can re-list it for sale and make some of its money back.
In either scenario, once the home is sold, you will be forced to leave it.
There is, however, one thing you can do after the auction.
You can buy your house back after a foreclosure
The one thing that can prevent the complete loss of your home, at this point, is the redemption period where you have the option to buy the house back if you have the capital to do so.
Most people look to see if they can buy their house back after foreclosure, but you need to have the funds -- either from a high interest organization loan or from a private lender (if you don't have the money yourself).
Most states have a redemption period, and the time frame may very from state to state, so it's important to look up the laws in your location.
My home was foreclosed, now what?
If you aren't able to buy the home back, then it's time to start moving forward.
If you're wondering how long do you have to move out after foreclosure auction, the answer is: it depends.
Each state will have different procedures when it comes to the eviction process, but in many cases the lender will move to have the eviction as part of the judicial foreclosure. In some states, the eviction process has to take place separately, which may give you a few weeks to several months of time.
That means the "write of assistance/possession" will be filed at the same time, and once the home is sold and foreclosed, the Sheriff will be dispatched to notify you to vacate the property, normally within 24 hours.
The notification may just be a notice posted on the door, so they aren't required to "serve" you in person.
Whatever remains in the home after 24 hours may be removed by the Sheriff's crew, although in most states that property still belongs to you, so you have the option to come and take it.
Do you still owe money after foreclosure?
This is a common question that most people have when dealing with foreclosure because the financial aspect can be a bit confusing.
In some cases, after the foreclosure, if the sale proceeds don't not cover the remaining balance on the mortgage, you could still be liable for the remainder.
This is called a deficiency on the mortgage, and it's a debt that stays with you.
Sometimes, the bank will have to file a lawsuit to recover this from you. Fortunately, many stays have a law that limits how much they can request from you in the lawsuit.
A scenario where you may owe money is when you purchased a home for an amount that is greater than the market value.
If the home sells for near market value at auction, then you may still have a balance owed directly to the mortgage company, and that's what will remain as deficient.
If it's significant enough, the bank may seek to recover it from you. But if it's a small amount, they may forgive it entirely. The bank will weigh their options and look at which is less costly.
One thing you can do, if there is a deficiency, is file for bankruptcy to wipe out the liability. This is generally only recommended if there are multiple debts that would benefit from the bankruptcy, not if it's just for the deficiency.
What you can legally take from your foreclosed home
When the home is foreclosed and you need to vacate the premises, there are certain things that you are not allowed to remove.
Anything that is your personal possession, such as clothes, jewelry, art, pictures, sculptures, are yours to take.
However, if there is anything that is built into the wall of the house, for example an antique door, or a special window, then those must stay as they are considered part of the property.
All of the furniture, rugs, and curtains are yours to take, as they are your property. But flooring such as carpet may not be removed as its considered a fixture for the property.
As for appliances, anything that is not considered a fixture to the property maybe removed. Fixtures include dishwashers, garbage disposals, and alarm systems. They are built into components of the house.
But dryers, washers, refrigerators, televisions, separate range/stoves, are movable appliances and can be taken.
Can bank garnish wages after foreclosure?
There are many different types of creditors that can file a judgement against you in order to garnish wages and recover some of their monetary losses.
Mortgage companies and private lenders, however, do not fall under the category, and so they will not be able to file a successful judgement in order to garnish your wages.
There is another scenario where you may owe money...
Who is responsible for property taxes on a foreclosure?
Although you may be losing the home to foreclosure, until it becomes the ownership of someone else, you still receive the bill for the property taxes.
If the home is going into foreclosure, the lender may consider paying the taxes in order to bring it current, but in many cases the taxes are attached to the property as a lien and it's up to the new owner to pay those taxes.
This will either be the new owner (someone who won it at auction) or the lender (if the home did not sell at auction).
As such, tax liens are not wiped out during a foreclosure. They must be paid by someone, and that's usually the new owner.
How bad will a foreclosure hurt my credit?
Depending on where you credit score is, the impact will vary.
The higher your credit score, the harder the hit will be.
If your credit score is around 780, then a foreclosure will drop your score about 140 to 160 points.
If your credit score is somewhere near 650, then it's possible that it will be only around 85 to 105 points.
People with a higher credit score have much more to lose, and if the home is going to foreclosure, then they will have already impacted by multiple months of late payments.
It's best the resolve the situation early on in a pre-foreclosure or sell the house first so that your credit can recover and you have the ability to purchase another home when your financial situation improves.
A loan modification may be a suitable option as well, if the bank is up for it. Although it will still impact your credit, it won't be nearly as bad as a foreclosure.
Other effects of foreclosure
Aside from all the legal and financial ramifications of foreclosure, it may cause a lot of stress and anxiety.
The stress caused on families and relationships dealing with foreclosure is enormous, and many don't come out the same.
Because a foreclosure can impact you during the process as well as your future options in terms of credit and owning a home, preventing your home from going to option can help spare you some of the future pain.
If you are facing foreclosure, please consider these ways to stop foreclosure at the last minute.
If there is no other option available to you, then get in touch with us so we can put an offer on your home and prevent it from being foreclosed on.
This will hopefully put some cash in your pocket and help prevent your credit from being damaged so badly that you are unable to get a lease or a new home in the not too distant future.