When a homeowner has not met the terms of his home loan agreement by not paying the monthly mortgage, the foreclosure process begins. This is a legal process undertaken by the lender to force the sale of the property. In some cases, others who have a lien on the property – such as the county in the case of property taxes not being paid – can also begin a foreclosure process. A number of myths swirl around the foreclosure process, from the role they play in the economy to what happens after your house goes into foreclosure.
Foreclosures and the Economy
An increase in home foreclosures coincided with the Great Recession that began in 2008, a time period that saw a drastic decline in home prices, leading to speculation that it could have been those foreclosures that caused the free fall. That’s not true, said Sean O’Toole, founder of ForeclosureRadar, told Sanford Nax of the “Sacramento Business Journal” that home prices fell because of a credit bubble that allowed unrealistic loans, leading to people buying homes they could not afford. An increase in foreclosures was the effect, not the cause, of the situation.
Risk of Foreclosure
If money is tight and you’re having a hard time scraping together your mortgage payment, you don’t need to live in fear. It’s a myth that one payment missed can begin the foreclosure process, says Lew Sichelman in the “Los Angeles Times.” It takes 90 days of delinquency for the foreclosure process to begin, so if you’ve only missed one payment, talk to your lender about how to get back on track. Additionally, it’s a myth that filing for bankruptcy stops a foreclosure -- it only creates a temporary delay in the process.
After a Foreclosure
Once the bank has taken back a house, it’s a myth that your involvement in the process is over. If the bank sells the house for less than you owed on the mortgage, you’re responsible for paying the difference, plus interest, reports the financial website Daily Finance. However, this is where a bankruptcy can come into play and clear you of owing that difference. Once you’re finally through the foreclosure process, your dreams of owning a home again aren’t completely dashed. It might take seven years to be approved for a mortgage again, but building your credit and working with an approved counselor means you could buy a house with a mortgage loan again someday.
Buying a Foreclosure
With a number of foreclosures on the market, buyers hope to scoop up a home at a great deal. However, it’s a myth that foreclosures are always priced extremely low when compared to other houses in the area. You can expect a possible discount of 25 percent, but you shouldn’t expect a price decrease of 50 percent or more, Realis CEO Lauren Roberts told DenverPost.com. Additionally, foreclosed homes are not always in incredibly poor condition, another common myth, though they can be on the market longer than traditional sales. Buyers run the risk of finding structural problems in any home, not just foreclosures -- do your research to find out how long the home has been empty, how long it’s been since the home had regular maintenance and if any acts of vandalism have been reported.
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- Oregon.gov: Foreclosure Help
- Daily Finance: Beware These 12 Foreclosure Myths
- DenverPost.com: Realis CEO Lauren Roberts Sheds Light on Common Foreclosure Myths
- Realty Times: Foreclosure Myths Debunked
- Los Angeles Times: Foreclosure Myths, Debunked
- Sacramento Business Journal: Foreclosure Expert Tackles Myths, Says No New Wave Is Coming
- Jupiterimages/Comstock/Getty Images