Foreclosure is defined as the legal process of forfeiting one’s right to possess a house or real estate property due to the inability of the legal house owner to clear his debts. A creditor or the money-lending company proceeds to get the permission from the court for foreclosing the property to collect pending dues from the debtor. Ultimately, the debtor is a loser who has to leave real estate property when the house is foreclosed.
Common Negative Factors of House Foreclosure
- House ownership right lost
- Credit scores go down
- Chance for expecting easy mortgage loans is lost
- Little scope to win trust of professional money lenders, financiers, or banks
Side Effects of Foreclosure
Due to the home foreclosure, a debtor can face a number of side effects that damage social status or prestige. One of the severe negative points of the property foreclosure is the loss of the ownership right over the house or mortgaged property. So, a debtor should not overlook the negative factors relating to house foreclosure. To be frank, mortgaged property is only foreclosed when the creditor is not confident of restoring his loan amount from the debtor. Truly speaking, a borrower must be responsible for clearing the outstanding balance within the stipulated time.
Pre-foreclosure Impact
The court often showcases leniency by giving a chance to the borrower to upgrade his credit ratings by managing his pending debt. This legal condition is called “pre-foreclosure.†Within 30 to 120 days (grace period), the debtor has to settle the complicated debt clearance issue to overtake the negative effect of the foreclosure. The court observes whether the debtor is ready to repay the debts to recover the mortgaged property. The pre-foreclosure option is beneficial to an economical debtor to get back the legal right to own the property mortgaged to the money lender.
Right of Redemption
Truly speaking, in the event of the failure to arrange fund payback, the debtor is put under the strict legal obligation to hand over the mortgaged home to the creditor or the bank. The foreclosed house will be sold to gather proceeds. In America, the county court often directs the creditor to wait for the “right of redemption†in some special cases. In this case, the debtor is allowed to arrange the fund to pay the money lender at the last moment before the declaration of the house foreclosure. The borrower will get back all legal documents to claim ownership over the mortgaged house after debt clearance at the office of the trustee. In this connection, the debtor must talk to a legal authority or attorney about how to prepare the papers or legal documents to apply for the right of redemption.
Credit Ratings Affected by Foreclosure
 The house foreclosure is not advantageous to a borrower. The borrower’s credit history receives lower ratings to bottleneck the possibility of getting another secure loan in the future. Money lenders will not prioritize debtors with low credit ratings when they offer long-term home loans to customers. Obviously, the debtor has no other way to survive. The credit bureau is not desirous of divulging information regarding the process of losing points in the matter of the delinquency. Recently, the Fair Isaac Corporation (FICO), who has modified the FICO score points, holds responsibility to reveal the methods of declination of credit ratings during post-foreclosure. For instance, FICO credit ratings decline faster when the insolvency period starts faster to hit the total credit history of the debtor. From 130-240 FICO credit points decline during severe bankruptcy. However, within the grace period that stays a maximum of 120 days (pre-foreclosure), the credit ratings start running down from 40 to 110 points. In this regard, the online credit delinquency graph or chart shows how the borrower’s credit ratings deteriorate at the time of house foreclosure.
Post-Foreclosure Impact
 During the house post-foreclosure period, a mortgaged home is placed at auction. However, in case the house is not bought by anyone, the creditor or the bank obtains legal power to take the foreclosed property into its own possession. Often later, the creditor decides to sell the foreclosed house at the liquidation house foreclosure auction to check the financial breakdown.
Debtors should not show apathy or indifference when they have to face the property foreclosure. They must go to experienced real estate attorneys who deal with various cases in relation to home foreclosure. The impact of the foreclosure is powerful in hurting the financial background of a person. Besides, a debtor is deprived of having a flexible, secured loan during a crisis. The debtor should invent innovative debt-management techniques to boldly resist such a traumatic situation.
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